Technology and tech-related stocks surged in 2020 due to the COVID-19 pandemic, which made consumers shift to e-commerce. However, now that we are returning to physical stores again, some tech companies’ stocks are beginning to tumble. As an investor in the tech industry, you need to find ways to avert the losses that this downturn may bring. One of the tricks around this is diversifying your tech portfolio. But how do you ensure that you smoothen all the bumps that may adversely affect your long-term investment in the tech industry? Read along to find out.
Consider Investing in Multiple Asset Classes
Investing in asset classes with low correlation, such as stocks and bonds, is advisable so that when the price for one asset class goes up, the other remains on the lower side. For example, if you are a stock trader in the tech industry, do not put your eggs in a single basket, as the losses will be massive if the trades don’t favor you. Instead, invest in other sectors such as automotive, consumer goods, healthcare, etc. Additionally, invest in mutual funds and ETFs, whereby multiple stocks are held in a single basket.
Understand What Affects the Financial Markets
Once you completely understand what drives the financial market behavior, you will be able to select the best assets for your tech portfolio diversification. Consider factors such as demand and supply, inflation, interest rates, a country’s monetary policy, etc. You may use quantamental investing tools to identify the best tech stocks in the market.
Go for International Markets
Many investment activities are held in the US, making it easy for investors to forget about trading across borders. Note that different geographies have different economic cycles, minimizing the risks of your investment holdings moving in the same direction. Besides, trading in larger markets like Europe and Asia allows you to try world-renowned companies like Alibaba, British American Tobacco, Aviva, etc.
Invest with a Good Broker
To diversify your tech portfolio, ensure you have a broker that offers multiple investment opportunities. This means that you should also be able to trade international markets and various asset classes. For instance, the UK market has plenty of brokers that allow you to invest in tech companies. Take your time to compare these brokers’ features and find one that offers diversified assets. You can check out the best brokers in the UK.
Rebalance Your Tech Portfolio
Many investors consider portfolio diversification a one-time activity when it should be done consistently. With advancing technology, the tech industry keeps changing, thus affecting market behaviors. In this regard, you must keep checking your tech portfolio to identify areas that require adjustments before risk levels increase quickly. In this regard, investors should balance their tech portfolios at least twice annually.
Summary
Diversifying your tech portfolio should consist of assets with low or no correlation. In addition, the investment holdings should move in different directions and be from various asset classes, regions, or sectors. You can also try alternative investments like commodities, real estate, hedge funds, private equities, etc. This is because they have a low correlation with tech stocks and can mitigate losses if your tech investments perform poorly.
If you are wondering how to select the best asset for your tech portfolio diversification, you should consider market trends, time horizons, sectors, and liquidity. What’s more, always think about risks and be fully knowledgeable about the assets you plan to diversify your portfolio.
