Posted by Gary S. Williams, CFP®, CRPC®, AIF® and Nicholas A. Ibello, CFP®, AIF®
If you have been investing for at least twenty years, you have seen both the good and bad times for technology stocks. The late nineties may even be considered legendary. Technology stocks rose to epic proportions and anyone that could throw a dart could pick a winner. Everyone felt like they should become a full-time day trader. Euphoria was in the air. That came to a screeching halt in the early 2000s when technology and the dot.com bubble burst. Then came the market run-up before the Great Recession, with technology stocks doing very well from 2003-2007; the Morningstar US Technology Fund Category averaged 17.41% return per year. Then, of course, came the Great Recession and technology stocks, along with the rest of the market, got clobbered. However, since 2009, technology stocks, and the U.S. stock market in general, have reached all-time highs yet again and nobody knows when the current run will end.
More recently, FAANG stocks — Facebook, Amazon, Apple, Netflix and Google-parent Alphabet — have been top picks. For the past five years, ending April 1, 2019, FAANG stocks have driven much of the returns of the market (returns shown per year on average):
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Facebook 21.92%
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Apple 21.27%
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Netflix 47.76%
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Google 16.13%
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Amazon 39.53%
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MSCI World Index 5.14%
(Source: Morningstar®)
If you had the foresight (or luck) to invest in these stocks five or ten years ago, then you deserve a pat on the back. After the technology bubble burst in the early 2000s, many investors learned a tough lesson; what goes up must come down and sometimes it makes sense to take profits. Of course, this decision has many considerations including risk tolerance, time frame of goals, and concentration risk, to name just a few.
For those that weren’t lucky enough to invest your nest egg into any of these stocks and are now considering increasing their exposure to technology stocks, here are a few considerations. Investing can get as complicated, or as simple, as you want it to be. You can invest in the broad technology sector or invest in particular industries such as data storage products, networking products, or semiconductors. If you don’t want to take the time to research individual stocks, we recommend investing in either a professionally managed mutual fund or a low-cost index fund. On the other hand, if your appetite for risk is large, you can deal with illiquidity for a decade or more, and you have access, you could dip your toes into venture capital funds to gain exposure to tech stocks before they become household names. Imagine being the first investor in Microsoft.
As always, we recommend you continually monitor your investment portfolio to ensure you are properly diversified based on your goals and risk tolerance.
Let the Certified Financial Planner™ professionals at Williams Asset Management help with your wealth management needs. Whether you need comprehensive and holistic financial planning or investment management, we can help! We are fee-based, independent financial advisors located in Columbia, the heart of Howard County, Maryland. Schedule your complimentary consultation today by calling (410) 740-0220!
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