Tech Stocks: How to Pick the Right Tech Stocks, and Avoid the Wrong Ones
In what has been a volatile year for the global economy, it’s no surprise that some of the best-performing stocks have been those in the technology sector. Of course, like with any investment, there are risks you must be aware of before investing. But with the right knowledge and research, you can make a good return on your investment by knowing which tech stocks to buy. What kind of companies should you invest in? What factors should you consider when making a decision? What is a stock market index and how does it affect my investments? These questions and more will be answered as we dive into the world of tech stocks.
What is a stock market index?
For the uninitiated, a stock market index is a representation of how each stock in that specific market is performing. The indexes vary greatly from market to market, with the S&P 500, for instance, representing 500 of the largest U.S. stocks. They’re created and maintained by stockbrokers, usually based on market capitalization (the current market value of a company). As of this writing, the S&P 500 index is up 13.52% for the year so far. Therefore, a lot of your investments will have a big impact on the price of a particular stock. However, just because an index has risen steadily over a long period of time doesn’t mean that its performance will continue at a steady pace. When the global economy does go through ups and downs, it can affect the stocks in your portfolio.
Why invest in tech stocks?
Many investors choose to invest in internet stocks for the potential growth in the share prices. By being able to predict the trend of the company in terms of sales and profits, investors can make a profit. Unfortunately, the average dividend is only 2.9%, which makes it extremely difficult to predict the company’s future and its shares. With this in mind, you would be forgiven for not wanting to invest in tech stocks at all. But, do your research, and choose the right companies to invest in. Whether you’re investing in shares or seeking out financial institutions, there’s a stock market index out there that should be considered. Some index funds will choose to invest in tech stocks, while others will ignore these stocks altogether.
Stock market indexes and how they affect your investments
Like any investment, it pays to have a well-thought-out plan before you put your money into any market. If you plan to invest in the stock market, the important thing to note is that you should never invest more money than you can afford to lose. To figure out how much money you can afford to lose, you need to figure out the value of your investments after a couple of years. The most popular stock market index to measure value is the S&P 500 index. The S&P 500 Index measures the performance of 500 large companies in the U.S. index. The following table shows the amount that you can lose if the market performs poorly over the next couple of years: Financial crisis in 2008 has had a major effect on the U.S. stock market.
How to pick the right tech stocks and avoid the wrong ones
Some things are hard to get your head around when you first start out as an investor. But there are two crucial questions you need to answer to make sure you get the best return on your money. How are you going to pay your investments back? This question will dictate the next step of your research. When it comes to tech stocks, the general rule is to use cash. Stock market index funds give you exposure to the whole market, but you’re limited to the stocks listed in your chosen index. These funds offer much greater diversification than one company stock, and so offer less risk. But they also cost money. If you want to make sure your money is being used wisely, you need to consider using a diversified mutual fund that gives you exposure to a number of different companies.