Just What Is Technology Investing?
Technology investing is an increasingly popular way for individuals to invest their money both as a way of building a security net for retirement as well as taking a shot at that explosive growth company that could build massive wealth for them. That being said, technology investing can be quite hazardous, as well. For every Google, Facebook, and Amazon there are a half dozen companies like Netscape, MySpace, and WebVan.com that were successful for a while and then shuttered up. Take for example a website like SimplyThick. There are dozens of hundreds of other companies who tried to do the same thing and never got off the ground.
Tech Investing Promise & Opportunity
Technology investing offers plenty of promise & opportunity, but it also offers plenty of risks, as well. Some would argue even more so than many other traditional market areas of investment. However, a little bit of research and understanding the full number of options available can help anyone to make smarter decisions when weighing the pros and cons of technology investing.
At Its Heart Technology Investing Is a Style Investment
Style investment means that an investor pours their money into one very specific area. This can be in a general way like Warren Buffet who looks for long-standing rock-solid companies with a lot of stashed cash and good fundamental spreadsheets, or people who invest only in utilities, only in outdoor manufacturing, or only in technology.
Technology has been a hot sector for over two decades, and that is a trend that is only likely to continue as advancements in technology have not only made tech an area that builds upon itself as a niche but it has advanced nearly every other industry or field imaginable, making it an intertwined necessity in business, investing, and any future economic development.
Different Sector Options
One of the first things to understand is that technology investment is a fairly open umbrella term. There are many different companies that can fall under the moniker of “tech” and this includes both structural based tech companies and what they do as well as tech companies that aren’t so much involved in creating new technology or technical tools but does something else new with the use of technology.
The Big 4 of Direct Tech
Companies involved really in-depth with the actual technical side or programming side of technology stocks are focused in on software, programming, hardware, and those types of issues that would make them a mainstay of their sector. Microsoft is an example of a truly giant tech firm as they are all about the software and everything else they do or explore still plays off of that central software and programming tenant.
The Big Four Niches:
- Networking & Internet
There are many options in hardware-focused companies. These don’t get quite the respect they used to but no matter how out there the software or intriguing the idea, without the right hardware to act as the backbone, the rest doesn’t matter. From niche companies that focus on making computers for self-driving computers and as the background for AI software to communications equipment or specialty electronics, all of these require specific hardware and the companies that can produce something new and reliable are going to be solid players in the industry.
The challenge is understanding how specific hardware can apply to many sectors and how they compare to the competition. This can be a major hurdle for first-time tech investors.
Software Based Focus
Everyone has a basic idea of what software is, but figuring out how to invest in it is a bit more of a challenge. Cloud computing and collaboration software are major examples of products that have come out from a wide variety of companies. Because quality software comes from creative coding and work, this means new software-based tech startups can just appear seemingly overnight, get competition just as fast, but that can lead to massive growth or heavy flame out.
This is a challenging section of tech to invest in but also has plenty of potential worth taking a look at.
Networking Based Focus Networking focuses on the technology that allows companies to pull together several types of software in a protected way that allow a better service to emerge. This is how e-retailers like Amazon can provide so many options online then accept payment from banking software. Whether business-to-consumer in focus or business-to-business, this is a major area of tech that has an effect on hundreds of billions of business every year.
Related “Tech Related” Options
There are companies who use technology but to serve a different market or purpose and not necessarily be involved directly in things like software or hardware. Everyone is familiar with companies like this. Uber uses technology to combine gig economy with alternative taxi service. Amazon uses technology to combine postal/shipping with retail shopping. Netflix is the local movie rental place but much cheaper and you don’t have to leave your home.
While social media sites rely on the Internet, programming, and online interaction in its entirety as a business model, and that can be a viable setup in the right circumstances, many investors prefer to find a tech startup that provides a model they understand. These are tech related even if the service is more tangibly real world, and sometimes the two can overlap or blend quite a bit.
Invest in Understanding
Technology investment offers many options in part because of just how to spread out into every niche that tech has become in general. If you don’t understand social media or programming, avoid companies that look like Twitter, Facebook, or are all business software related. There are still companies like Amazon, Uber, and startups that are doing interesting things every day like becoming better at helping companies pick out the best potential worker for a job opening or connecting talented freelancers to high paying freelance gigs (improving on remote work).
Staying in areas you are at least somewhat familiar with helps to guide you towards smarter investing decisions as opposed to pure guessing.
Understanding Investment Options
Perhaps the most important part of investing in tech is understanding the three main ways to get involved. One is with individual stocks. These are companies that are already publicly traded and you’re betting on them continuing to grow and thrive over time. Many people prefer to tech invest by keeping an eye on companies and waiting for them to go public, choosing to jump in during that opening fray and get on board at the first chance.
Then there are tech indexes. These are investment plans where various types of tech stocks are put together in a mutual fund sort of setup and investors who love the area but don’t feel confident investing can put their money into these funds and have a small share of a large number of tech companies. This is a great way to build a long-term stock plan especially on semi-limited funds and sometimes is even available through a 401-k or IRA plan.
Then There’s Venture Capital Venture capital is the process of actually investing in a startup with certain terms hammered out. This is a “silent owner” type role and is very high stakes but high rewards. If the company fails and folds up completely there’s a chance you will lose 100% of your investment but if the deal is 10% stock upon going public and the company becomes the next billion-dollar behemoth, then you are rich beyond (likely) your wildest dreams.
This requires a certain amount of capital, some understanding of how venture investing works, and often times getting in with the right group to look at potential options and investing accordingly.
As you can see, there are many different options when it comes to investing in the world of tech, and different areas are going to call to investors in different ways. Some very tech-savvy individuals might dive into the hardware or software companies while someone who doesn’t understand that level of technical work will want to look at other options, perhaps venture capitalism or investing in the companies that provide a service that makes sense.
Technology investing has plenty to offer, and that is a trend that will continue into the future.