Skip to main content

Sound Advice: August 3, 2022

Are tech stocks worth the additional risk? 

Companies whose focus is technology have been accounting for an increasing proportion of the total value of the Standard & Poor’s 500 Index over the latest 10 years.  Since the giant tech companies have grown more rapidly and now represent 28% of the total, the S&P Index has become more volatile.

The S&P has been largely propelled by a group that had been known as the FAANGs: Facebook, Amazon Apple, Netflix, and Google.  The propulsion goes both ways.  This year, the combination of a lingering pandemic, hyperinflation, and conflict in Ukraine has sent the investment markets tumbling, with this group leading the way down.

For this reason, it seems worthwhile to think about investing in the broad market in slightly different ways.  Since the S&P Index is biased toward the largest companies, it would be interesting to consider the results if all stocks in the index were equally weighted.  That would be an exchange-traded fund with the ticker RSP.  Another option would be SPXT, an exchange-traded fund with no tech holdings.

People who view the exclusion of tech as heresy may be more interested in investments that are strictly focused on technology.  Broader investments would include RYT, an exchange-traded fund with equal-weighted technology holdings, and XSW, which holds shares of software and services companies.

Here are the results: Since 2010, RSP had average annual return of 12.5% compared with an S&P 500 return of 13.0%.  Its price fluctuation along the way was lower and its dividend yield is higher (1.8% vs. 1.6%).

The tech-only ETFs were by far the best performers.  RYT was up 345% while XSW gained 255%.  The three other ETFs climbed half as much, but as one might suspect that’s not the end of the story.

For 2022 to date, the picture has changed dramatically for the worse for tech investments.  RYT, the equal-weighted technology ETF, was off 27.5% while XSW, the software and services ETF, dropped almost 34%.

Although most stocks have been pummeled this year, RSP, the equal-weighted S&P 500 ETF and SPXT, which excludes tech stocks, were about 18% lower, not a great result, but better than the S&P Index itself and much better than techs as a group.

Over extended periods, investments in technology stocks may provide greater rewards, but be prepared for big bumps along the way.

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883

 203-222-9370

 www.soundasset.com

www.soundasset.blogspot.com

 

Any questions?  Please contact me at nrwayne@soundasset.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: January 3, 2025

2025 Market Forecasts: Stupidity Taken To An Extreme   If you know anything about stock market performance, you can only gag at the nonsense “esteemed forecasters” are now putting forth about the prospective path of stocks in the year ahead.   Our cousins in the UK would call this rubbish.   I would not be as kind. Leading the Ship of Fools is the forecast from the Chief Investment Strategist at Oppenheimer who is looking for a year-end 2025 level for the Standard & Poor’s Index of 7,100, a whopping 21% increase from the most recent standing.   Indeed, most of these folks are looking for double-digit gains.   Only two expect stocks to weaken. In the last 30 years, the market has risen by more than 20% only 15 times.   The exceptional span during that time was 1996-1999, which accounted for four of those jumps.   What followed in 2000 through 2002 was the polar opposite: 2000:      -9.1% 2001:     -11.9% ...
Post a Comment
Read more

Sound Advice: January 15, 2025

Why investors shouldn't pay attention to Wall Street forecasts   Investors shouldn't pay attention to Wall Street forecasts for several compelling reasons: Poor accuracy Wall Street forecasts have a terrible track record of accuracy. Studies show that their predictions are often no better than random chance, with accuracy rates as low as 47%   Some prominent analysts even perform worse, with accuracy ratings as low as 35% Consistent overestimation Analysts consistently overestimate earnings growth, predicting 10-12%                 annual growth when the reality is closer to 6%.   This overoptimism can                 lead investors to make overly aggressive bets in the market. Inability to predict unpredictable events The stock market is influenced by numerous unpredictable factors, including geopolitical events, technological changes, and company-specific news.   Anal...
Post a Comment
Read more

Sound Advice: July 16, 2025

Fixed annuities are poor investments Fixed annuities are often criticized as poor investments for several reasons, despite their reputation for providing stable, predictable income.  Here are the key drawbacks and concerns:   High Fees and Commissions Internal Fees:  Fixed annuities can carry a range of fees, including administrative charges, mortality expense risk fees, and rider fees. These can add up to 2%–4% per year, significantly eroding returns over time. Commissions:  Sales agents and financial advisors often receive high commissions for selling annuities—sometimes as much as 5%–8% of the invested amount. This creates a financial incentive for advisers to recommend them, even when they may not be the best fit for the client. Comparison to Other Investments:  Mutual funds and ETFs typically have much lower fees and commissions, making them more cost-effective for long-term growth. Limited Growth a...
Post a Comment
Read more