If you’re reading this, chances are you bought into tech stocks recently.
Or you were tempted to. The FOMO (fear of missing out) is real.
If you did, it’s been an impressive ride…until a few weeks ago. Tech stocks plunged in September, and you may be second-guessing yourself now.
Welcome to the world of tech investing. It’s not all gains, glamour and GIFs. Tech stocks can be a wild ride, unlike the historic, almost straight-up rally we saw this summer.
But don’t give up just yet. We’ve got some tips for you on how to survive the pain, so you can (hopefully) enjoy some gains down the road.
Consider sticking it out.
September has been a rough month for all investors, but tech has really taken one on the chin. The tech-heavy Nasdaq 100 has dropped 12% since September 2nd, after its fastest 10% decline on record. FAANG – Facebook, Apple, Amazon, Netflix and Alphabet (Google) – stocks are down 15%. That’s steeper than the S&P 500’s 9% decline. Even Apple was down 20% at its worst point. You didn’t sign up for this!
Bad news: chances are you’re going to deal with ups and downs no matter what you invest in. Tech stocks can be exciting, but they shouldn’t be viewed as a “get rich quick” strategy.
Take Apple for example. Apple’s success has likely changed some investors’ lives, but the stock hasn’t been an easy ride. If you invested $100 in Apple shares when the stock went public in December 1980, that investment would be worth about $100,000 today. But you would’ve also had to endure 23 separate declines of 20% or more without selling your shares. Read that last sentence again.
The good news? That’s the power of long-term investing. Ups and downs don’t matter to you unless you’re actively buying or selling. If you can ride this one out, your patience could be rewarded down the road.
Focus on the story, not the swings.
Along those lines, remember why you invested in the first place. Sure, there may have been a little bit of peer pressure to not miss out, but tech is a compelling industry that’s shaping the world right now. You wanted a piece of that space.
We think tech stocks could have a promising future (if you can handle the swings). The coronavirus pandemic forced workplaces and consumers to find more tech-savvy solutions during quarantine, and society’s shift online shows no signs of slowing down.
Tech earnings have barely been dented by the pandemic, with profits falling just 2.8% year over year in the second quarter. Earnings are expected to grow by a double-digit percentage year over year in 2021 –and tech has a history of beating those expectations.
Even the Federal Reserve is on tech’s side. Last week, the Fed hinted that interest rates could stay historically low until 2023. Lower rates boost the future value of sales and profits, so technology companies with higher growth prospects get an especially big lift.
Show FOMO who’s boss
If that feeling of FOMO has been nagging you, it could be a good time for you to consider jumping into some of the high-flying tech stocks you’ve been eyeing.
Double-digit declines in tech don’t happen often. As legendary investor Warren Buffett once said, “be fearful when others are greedy and greedy when others are fearful.”
Being opportunistic can have its benefits. Just think about those bear markets in Apple. Sure, hindsight is always 20/20, but declines like these could be a good way to squash that FOMO you’ve been feeling.
You’ve got this.
Tech investing isn’t for the faint of heart. Tech’s selloff may not be over, but there are reasons to consider sticking it out or dipping your toe into the popular sector. You’ll need to consider how tech would fit into the rest of your portfolio. Spreading your money across multiple sectors and assets (bonds, gold, real estate, etc.) could be a wise move. Don’t put all your eggs in one basket.
Owning tech over the past several months has been exciting, but it can turn emotional quickly in times like these. That’s why it’s so important to have a plan and stay focused on your goals as an investor instead of giving into your emotions.
Take a breath. You’ve got this. And we’re here for you.
Lindsey Bell is Ally’s Chief Investment Strategist, responsible for shaping the company’s point of view on investing and the global markets. She is also President of Ally Invest Advisors, responsible for its robo advisory offerings. Lindsey has a broad background in finance, with experience on the buy-side and sell-side, in research and in investment banking and has held roles at JPMorgan, Deutsche Bank, Jefferies, and CFRA Research.
Lindsey holds a passion for teaching individuals how to become successful long-term investors. She frequently shares her knowledge as a guest on national news outlets such as CNBC, CNN, Fox Business News, and Bloomberg News. She also serves on the board of Better Investing, a non-profit organization focused on investment education.