February 22, 2022

How to Diversify your Tech Portfolio

Technology and tech-related stocks surged in 2020 due to the COVID-19 pandemic that 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 losses that may be brought about by this downturn. 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

It is advisable that you invest in asset classes with low correlation, such as stocks and bonds, 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

The moment you have a complete understanding of 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.

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 go to https://tradingguide.co.uk/ and 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, it is essential that you keep checking your tech portfolio to quickly identify areas that require adjustments before risk levels increases. In this regard, investors should balance their tech portfolios at least twice annually.

Summary

Diversifying your tech portfolio means that it 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, sector, and liquidity. What’s more, always think about risks and be fully knowledgeable about the assets you plan to diversify your portfolio with.

About the author 

Peter Hatch


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