With the technology sector growing at a rapid pace, tech stocks have garnered a strong threshold on the market, making it an attractive–yet challenging–space to step into for first time investors.
That said, investing in a technology ETF can simplify this process substantially, and for investors looking to make earnings and generate income over a period of time, it just might be a step in the right direction.
As such, the Investing News Network (INN) Has put together a brief overview of what you need to know before investing in a technology ETF.
Understanding tech ETFs
Technology ETFs, or exchange-traded funds, are marketable securities that track an index, a commodity, bonds or a collection of assets. Essentially, they allow individuals to invest in a targeted area of the market, rather than choosing specific company stocks to buy.
In that regard, ETFs can be bought and sold like stocks, but are bought and sold under one stock one an exchange, rather than investing in a specific company. As such, this is why ETFs is considered a safe and easy way to step into any sector–and indeed an attractive benefit in investing in a tech ETF.
This helps to mitigate risk and disperses investment over an entire market. Furthermore, it helps investors who aren’t particularly confident about the nuances of the tech market to get their foot in the door. However, investors who want to exert specific control over the stocks that they invest in might want to look elsewhere. ETFs don’t offer a lot of freedom in that regard, since they merely track an index or commodity.
Picking a tech ETF
According to ETF.com, there are at least 59 tech ETFs in the US, while the pickings are still slim in Canada. Despite the generality of most ETFs, there are still multiple opportunities for investors to choose whichever market sector appeals the most. For instance, you can put your money into a very general tech ETF that covers all of the major computer and tech companies. Take the the iShares US Technology ETF (NYSEARCA:IYW), for instance, which has shares in all of the big companies – Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Facebook (NASDAQ:FB) included.
Meanwhile, if you’re after a more specific area of the market, there are options for that at well. For example, the PureFunds ISE Mobile Payments ETF (NYSEARCA:IPAY) specifically follows the mobile payments sector. Be warned, different areas of the market come with differing levels of risk; when determining which technology ETF to invest in, people need to weigh their individual comfort level when it comes to potentially unstable investments. As a general rule, the broader the ETF the more stable it will be.
To learn more about the best technology ETF for you, click here to view the five tech ETFs for every investing style.
Reaping the benefits
All told, technology ETFs are an excellent way to go, particularly for new investors in the tech sector and those individuals who are more devoted to a specific sector than precise companies. If you’re not convinced, click here to read an interview with PureFunds CEO and tech mover and shaker Andrew Chanin, where he outlines why you should consider investing in a tech etf.
This article was originally published on the Investing News Network on May 30, 2016. As of April 24, 2017 this article has been updated by Jocelyn Aspa.
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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.