We are currently in the middle of the digital revolution, whose defining characteristic is the proliferation of technology in every industry. We depend on technology for practically everything nowadays and this is unlikely to change. As an investor, it is therefore crucial to incorporate technology into your investment strategy.
Including tech stocks in your investment portfolio
Since the beginning of the digital revolution, tech companies have been growing in value. For the last seven years, tech giants have consistently dominated returns in major stock indices. In fact, Apple, Microsoft, Amazon and Facebook currently account for almost a quarter of the S&P 500’s value.
Covid-19 had a role to play in this dominance, with demand for tech products and services having skyrocketed due to the pandemic and the associated lockdowns. Admittedly, tech was already a major part of our lives before 2020. However, the pandemic taught us just how instrumental technology is for communication, work, learning, commerce and entertainment, especially when physical movement is restricted. The demand for these services exploded, leading to an increase in their value. Consequently, investors reaped large profits.
From this perspective, including tech in your investment portfolio is a no-brainer.
With advancements in technology, many investment functions formerly conducted by humans have now been automated. Activities such as analysis, updates and information management have long been performed efficiently using software. Even services where the human touch was previously thought to be irreplaceable can now be performed by machines. A good example is the increasing adoption of robo advisors, digital platforms which offer investment guidance with minimal human interaction.
Tech-driven investing is thought to be unemotional, objective and utterly unforgiving in the decisions it guides, meaning that investors can rely on it to seek the best possible returns without any human bias or error getting in the way.
Indeed, we have a long way to go before such systems become mainstream, but this is the direction in which we are headed. Developments in AI, IoT, blockchain and internet infrastructure mean that we may get there a little sooner than we imagine.
Tech as a sector is a goldmine for investors. While it may fluctuate with the market, over the long run it has grown ever more important. So instead of thinking of it as just another sector, incorporate it into your investment strategy.