The technology sector is constantly changing. With new data networks popping up constantly, as well as the rapid pace of technological advancement when it comes to speed and data networking, choosing which technology sector to invest in can be a very risky business.
Thankfully there are investors like Xfund Patrick Chung who have had great success and can be consulted to give investors better insight when it comes to making investment decisions. But for the rest of us, here are a few things to consider when looking into the tech sector when it comes to investing.
Tech Areas To Invest In
For those that are new to technology investing, here are some of the main tech areas to consider:
- Telecommunications – These are the companies that essentially run the little mobile device in your pocket for billions of people around the earth. These data networks are a critical system for people as they use their cell phones to communicate and to do business. This is a relatively safe tech sector to invest in, but there are some very big players such as Verizon and AT&T that eat up this market, so newcomers often have a very hard time carving out any space.
- Internet Companies – While this used to be considered internet providers, it has expanded greatly into internet-based companies like Facebook, Twitter, and Uber. Many of these companies take years to actually turn a profit, but if you can invest early on and the company ends up being successful, the dividends can be more than sweet!
- Semiconductor Companies – These are the companies that actually make the electronic components for devices to work. Companies such as Samsung, Intel, and more make the microchips and silicon boards that operate and run all electronic equipment around the world. This is also a relatively safe area to invest in as all devices need microchips in order to work.
- Hardware Companies – Many of these companies also make semiconductor products, but the actual hardware that houses all of the components is a totally separate wing of the tech industry. Companies like Apple, Sony, Panasonic, and more fall into this category.
- Software Companies – What good is an electronic device without the software that makes it do all the technological magic? Companies like Microsoft, IBM, and Adobe produce software that utilizes the hardware and semiconductor infrastructure in order to allow the devices to work properly.
One of the most common ways for people to invest in the technology sector is via exchange-traded funds (ETFs). There are about 75 ETFs in the technology category that investors can choose from. Ther largest ETFs are as follows:
- Vanguard Information Technology ETF (VGT) is the largest ETF in the technology category. The top two holdings of this ETF are Apple and Microsoft.
- Technology Select Sector SPDR Fund (XLK) is the next largest which invests in Apple, Microsoft, Visa, Intel, and Cisco.
VGT and XLK are the largest ETFs by far as they boast assets of $41.3 billion and $35.6 billion in assets respectively.
If you are looking to invest in tech startups instead of proven companies via ETFs, the investing market is definitely much broader and much riskier. This is where having an angel investor pool that consists of a syndicate can be a really good starting point when it comes to investing. A syndicate has years of experience investing in tech and has a good track record of picking companies that make a profit instead of going under. By utilizing a syndicate, you can increase your chances of pooling your money into a group that makes good decisions and will eventually yield you a profit.
If you aren’t part of an angel investing pool, you can also individually seek out companies that are looking for investments. When this is the method chosen, it is very important to ask the right questions of the startup company to ensure you understand their business plan, their hurdles, and the risks that the business will be facing in order to be competitive in an extremely competitive market. Most tech startups fail, so picking the right one is definitely a challenge and hard to do. While the risk is incredibly high in this sector, the reward is also high. Case in point, Facebook and Twitter have become absolutely massive companies that are worth billions of dollars each.
Having a mentor is something that every investor should have, so if you don’t have one, seek one out using social media channels as well as networking to find the right person who can lead and guide you to success. There are also several books that have been written about investing in the tech sector which would also prove to be very helpful to someone who is new to the world of tech investing.