Technology affects nearly every part of our everyday lives, from how we live, work, and even invest. Innovations from the tech sector continue to drive economic growth, making tech investing a popular choice for investors.
Investors looking for long-term growth or to diversify their retirement portfolios may want to consider how tech investing can help them reach their goals. Tech investing is riskier than many other investments, but there are lots of ways to invest in tech for investors of all risk tolerances and investing experience levels. In this article, you can learn about different ways to invest in tech and how to decide which option is right for you.
Key Takeaways
- Tech investing gives investors higher growth potential than other assets, but can have higher risks.
- You can invest in tech through individual stocks, ETFs, mutual funds, crowdfunding, or crypto.
- The right way to invest in tech depends on your risk tolerance, timeline, goals, and investing experience.
- Diversification is key to mitigating the increased risk that tech brings to your portfolio.
The Rise of Tech Investing
The technology sector has become a giant in the global markets. While it’s easy to see the innovations in phones, artificial intelligence (AI), automation, and, recently, even quantum computing, there is not a market sector that technology has not touched.
The Magnificent Seven stocks, or the top-performing tech stocks, are major US economy and stock market drivers. These companies include Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia, and Broadcom. Like the little engine that could, these tech stocks have seemingly chugged through market ups and downs to remain on top. Their consistent performance and influence are getting investors’ attention.
Tech investing is a fantastic diversifier across industries and risk factors, with a strong history of long-term growth. Tech assets can also help balance out more conservative investments to help keep portfolios allocated correctly for an investor’s risk tolerance, timeline, and goals.
We live in a digital world where technological advancements happen every day, while we are doom-scrolling or micro learning on our phones that continue to get smaller and more powerful. Technology is here to stay, and tech companies are at the center of economic trends, especially as innovations can cause valuations to skyrocket. That’s a rocket a lot of investors want to ride.
Popular Ways To Invest in Tech
When adding tech to your portfolio, you’ve got plenty of options. You can invest directly in blue-chip giants, take a chance on startups through crowdfunding, get in on the crypto craze, or choose a more diversified route with ETFs or mutual funds. Each approach has advantages, trade-offs, and potential roles in an investment strategy.
Stocks and Shares
You can invest directly in tech companies by buying shares of tech companies in the stock market. These companies range from tech giants like Apple, Nvidia, and Microsoft to newer market stocks like Arm Holdings. Whichever company you choose, buying individual stocks represents partial ownership in the company. You’re buying their potential, but it’s important to remember that while a rising tide raises all ships, when the tide goes out, even yachts hit the mud.
Role in retirement portfolio: Shares of well-established tech companies can deliver long-term capital appreciation for investors with enough of a runway to retirement to weather the ups and downs of the more volatile tech stocks. Some tech giants like Microsoft have over a 20-year history of paying dividends. Dividends reinvested help you collect more shares over time and incrementally, but powerfully, accelerate portfolio growth.
How to start: If you want to invest in stocks as part of your retirement portfolio, you must open a traditional or Roth individual retirement account (IRA). Most employer-sponsored accounts like 401(k)s do not allow investors to choose individual stocks.
Tip
To open a traditional or Roth IRA, you can go through a brokerage firm or financial advisor—or take a self-directed approach with an online broker like Fidelity or Schwab.
Exchange-Traded Funds (ETFs)
Tech exchange-traded funds (ETFs) offer exposure to many tech stocks in one neat little package. ETFs are, by design, more diversified than buying a single stock. Even ETFs like the Technology Select Sector SPDR Fund (XLK), which cover 72 top-performing tech stocks, are subject to concentration risk.
Role in retirement portfolio: Don’t put all your eggs or money into one basket, but putting some of your money into a basket of tech stocks, with an ETF, is an excellent option for investing in tech. ETFs reduce risk because they’re diversified across many firms and trade like stocks on the exchanges. Most retirement accounts allow investors to invest in ETFs, and they often have much lower fees than mutual funds, meaning more of your money goes to growing your nest egg and not managers.
How to start: If you already have a 401(k), check with your plan administrator to see if you can choose a tech ETF for a portion of your portfolio. If you’re starting retirement savings, a brokerage firm with a Traditional or Roth IRA should allow you to select a tech ETF.
Mutual Funds
Tech mutual funds are often actively managed baskets of tech-related assets. Mutual funds pool money from investors and select assets that align with the mutual fund’s stated objective. Portfolio managers rebalance and reallocate as necessary to maintain the optimal mix for the goals of the mutual fund.
Role in retirement portfolio: Actively managed funds can outperform benchmarks, especially in complex and volatile sectors like tech. Tech mutual funds might work in your portfolio if you want exposure to tech and a professional looking out for your best interest, and keeping your exposure inside the parameters established by the mutual fund.
How to start: Like tech ETFs, you can purchase tech mutual funds in most retirement accounts directly or through fund families like Fidelity or Vanguard. The active management aspect of tech mutual funds makes them more expensive than other assets. Check the expense ratios of mutual funds before investing because high expense ratios can eat into returns.
Crowdfunding
Crowdfunding is one way up-and-coming tech companies raise capital by getting small investments from many people in exchange for equity, revenue-sharing, and even perks (like early access to a new product). When crowdfunding works, it can work BIG. When crowdfunding doesn’t work, you lose your investment with no recourse.
Role in retirement portfolio: Crowdfunding can strike like a match, be a slow burn, or fizzle altogether. Crowdfunding generally doesn’t have a place in retirement portfolios because it’s highly illiquid, speculative, and risky. However, for the right investor with a rock-solid investment strategy and iron investing will, equity crowdfunding, in particular, can work in a retirement portfolio because the upside is significant if the company succeeds.
How to start: Platforms like StartEngine, Republic, and Kickstarter allow investors to get in on the ground level of a company’s elevator to success. Investing directly in a retirement account is trickier. Only self-directed IRAs and 401(k)s allow you the flexibility to choose your investments, like crowdfunding.
Cryptocurrency
Cryptocurrency is a digital asset that uses blockchain technology to facilitate decentralized transactions without intermediaries like banks. Cryptocurrency has gained mainstream momentum in the last few years as more and more investors see crypto as a market disruptor.
Role in retirement portfolio: Cryptocurrency is a speculative investment, but some investors may value it for diversification or growth potential. By traditional investment standards, some cryptocurrencies, like Bitcoin, have shown tremendous growth even when faced with extreme volatility, regulation crackdowns, and skeptics.
How to start: You can incorporate crypto into your retirement investment strategies in a few ways. You can open a crypto IRA and directly invest in crypto assets like Bitcoin or Ethereum. You may use a self-directed IRA or 401(k) or choose ETFs that track crypto in most retirement accounts.
Which One Is the Best Option for You?
With so many choices for investing in tech, it’s hard to know the best option. Suitable tech investments depend on your financial goals, experience level, risk tolerance, and timeline. It’s also important to consider liquidity and diversification when deciding where tech fits in your portfolio.
If you prefer stability or are newer to investing, tech-focused ETFs or mutual funds can be a solid starting point. These assets offer instant diversification and professional management, helping to reduce some of the risks of tech investing. While they may not grow as quickly as individual stocks, they usually have steadier returns and lower volatility.
If you have a higher risk tolerance or more experience with investing, you may feel comfortable picking individual tech stocks or emerging tech options like cryptocurrency or crowdfunding. All of these options offer high growth potential but also higher risk. Crowdfunding, particularly, has liquidity risk because there is no secondary market. Even if your risk tolerance is sky-high, keeping tech exposure as only a portion of your retirement savings portfolio to balance it with more stable assets is smart.
What Is the Best Way To Invest in Tech With No Experience?
Tech ETFs or mutual funds are a good starting point for investors with no experience. These assets have built-in diversification and professional management. To start here, look closely at performance history and expense ratios to ensure you get the most bang for your buck.
What Is the Best Tech Investment for Long-Term Growth?
Companies like Apple, Alphabet, and Microsoft have the data to support their reliable long-term growth. Tech companies like Microsoft also have a history of paying dividends, which can also increase growth over time.
What Is the Riskiest Tech Investment?
Crowdfunding and cryptocurrency are the two riskiest tech investments. They’re both very speculative and lack any central regulation. Crowdfunding also has extremely limited liquidity, so once you’ve committed, you’re all in for better or worse.
What Are the Best Tech Stocks To Own?
The best tech stocks to own depends on your goals, timeline, and risk tolerance, but some indicators can help you decide. Look for industry leaders with a competitive edge, strong balance sheets, consistent growth, and appropriate valuation.
The Bottom Line
Tech investing offers investors an opportunity to benefit from dynamic growth. However, this sector is risky and requires investors to pay special attention to their risk tolerance, timeline, goals, and investing experience level.
High-growth opportunities like stocks, cryptocurrency, and crowdsourcing may seem appealing, but their volatility and lack of diversification mean they’re not right for everyone. Still, there are plenty of options for investors who value more stable assets, like tech-focused ETFs and mutual funds.
As technology continues to evolve, there will likely be even more investment options for those trying to harness the tech industry’s power in a way that makes sense for their financial future. Consider each asset’s place in a well-diversified portfolio to create a tailored strategy that captures the tech sector’s innovation and manages volatility.
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