» Investing in Stocks and Bonds » Technology Stock Characteristics

Technology Stock Characteristics

Technology stocks represent one of the most attractive investment solutions since if you have invested in them from their inception, today you would have accumulated a real fortune. For example, if you have been perspicacious enough and have invested in either Microsoft or Intel from their inception, now you will enjoy huge increase in the value of their stock.

The wide use of computers and the Internet have led to the increase of the value of technology stocks. Additionally, the employees of such companies who have acquired stocks from the beginning are now very happy with their returns. Everyone knows the story of Bill Gates and the accumulation of his wealth. Additionally, many investors dream of finding the next Microsoft.

The reason for the high growth of technology stocks is the gaining of popularity and use of computers and the successful management of such companies. Technology is everywhere around us and it has significant impact on our lives. As a result it tends to create new markets with good opportunities for profits.

One of the prominent examples is the case of Cisco, which managed to develop equipment that facilitates the flow of information over the Internet. Additionally, technology is needed in order to gain access to the tons of information available online. Dell has managed to see this need and effectively meet it by becoming one of the leading companies in this field, pushing its stock up.

However, technology stocks don't have only a good side. The other should also be concerned since they are not deprived of their drawbacks. Since they represent a relatively new market, as such they are characterized by a high degree of risk. The most dangers are hidden in the potential of the company to generate future earnings. The latter are highly volatile.

Technology stocks are susceptible to the influence of bad news, which may result in the quick sale of such stocks. When the next good news is heard, investors will quickly direct their attention back to technology stocks. So, discipline and nerves are needed in order to go through such ups and downs.

Technology Stock Characteristics

Technology stocks are characterized by their vulnerability. If they act as a group they are exposed to higher volatility. Additionally, you should have in mind that some classes of this type of stocks are more volatile than others.

Blue chip stocks tend to be more stable than the classic tech stocks. An example of a blue chip stock is the one issued by General Electric. However, the predictable nature of tech stocks has led to the elimination of the volatility risks associated with them.

When you construct your long-term investment portfolio, you should include tech stocks, since this will add to diversification. The reason for this is that they enjoy significant growth over the long term, which in turn compensates for their volatile nature. However, you should allocate enough time to supervise these stocks over the short term in order to avoid losses if some unbeneficial events occur.

What you should remember is that technology stocks provide for further diversification. Thus you should make them part of your investment portfolio. You should do your homework in order to enjoy the benefits they provide. If you feel unconfident in your abilities and knowledge you may consider the possibility of investing in a technology mutual fund, which will automatically give you the benefits of professional and experienced management. Since mutual fund managers are specialized in this field, all that is left to you is to look after the actions of this manager.

Rate this article : Low
  • Currently 2.5/5 Stars
  • 1
  • 2
  • 3
  • 4
  • 5