September, 2020.
By Jeff Headrick, Financial Advisor
Are tech stocks a good value?
Are tech stocks a good value? Will tech stocks do a nosedive like they did 20 years ago after the recent big run up? If I were to invest in tech stocks which should I choose and how would I blend this new selection into my existing portfolios?
If you have been investing with me for a while, you will know that I am a predominantly passive investor. I believe that a strategically allocated, highly diversified portfolio is a core component to consistency in the market. (for more on passive investing versus active see: Efficient Market Hypothesis
That being said, while passive portfolios may outperform 90% of the market, there's always that 10% that's in the back of my mind. 10% Of the US stock market is literally thousands of stocks, bonds, funds, and ETFs (exchange traded funds) so it's not exactly like finding a needle in a haystack.
Tech stocks have performed well
In my opinion, tech stocks have performed well when compared to other sectors. In the graph below you can see that over the 10 years tech stocks outperform many other sectors the S&P 500 considerably.
This particular tech stock investment, Technology Select Sector SPDR® ETF (XLK), has a strategy that comprises many tech stocks, but still does not meet the classical definition of a diversified portfolio.
It could have potentially multiplied your investment about +500% over the last decade, versus about +270% if you had invested in the S&P 500.
Source: Y-Charts
Are tech stocks a good value?
But are tech stocks a good value? Are they priced reasonably enough to where one believes that they will increase in value over time? If you are looking for a good value over the next 6 months to 2 years, I would say maybe not. However, if you are purchasing tech stocks Warren Buffet style and planning on holding for the long term (5 to 10 years), then maybe yes, tech stocks may be a good value.
If you would like to discuss tech stocks and how they might fit into your portfolio, feel free to contact me to schedule a 15 minute virtual meeting. Thanks for reading!
About the Author
Jeff Headrick is an independent financial planner and wealth manager with Inspire Financial Planning. When Jeff was still in his teens, his father died unexpectedly. While his father was a hard worker and a good provider, he did not have the best financial plan in place when he died. This left his family at a difficult financial crossroad. This personal experience, coupled with being inspired by Sir John Templeton, Warren Buffett, Dave Ramsey, and the laws of compound interest, prompted Jeff to enter the financial services industry in 1999. He has been helping people with their financial planning ever since. Jeff lives in Wilmington, NC with his wife and two children. He spends most of his spare time just across the Intracoastal Waterway in Wrightsville Beach, enjoying the beauty of the NC Coast.
The content within this article is for educational purposes only and does not represent an offer to purchase, sell, replace or exchange any specific investment. Charts and graphs contained herein should not serve as the sole determining factor for making investment decisions. All hypothetical scenarios are for illustrative purposes only. Investment Advisory Services offered through AlphaStar Capital Management, LLC a SEC Registered Investment Adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Diversification does not guarantee profit nor is it guaranteed to protect assets. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. You cannot invest directly in an index. Consult your financial professional before making any investment decision. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. These are the views of Inspire Financial Planning and not necessarily those of AlphaStar Capital Management, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.