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: July 8, 2020

Jobs Are Up, But So Are New Infections Through the spring months, m ost of the economic data was extremely negative, with record declines in employment and consumer spending.  The speed of that decline had no modern precedent. We are now in a recession.   The shortest recession on record occurred in 1980 and lasted just six months.  Second place goes to a seven-month recession in 1918-19, which was tied to the Spanish flu pandemic.  The big question is: When will this recession end? Given surprisingly strong data in May, April may have been the bottom of this economic cycle.  If so, it will have been the shortest recession on record.  With massive support from the Federal Reserve, the federal government, and the reopening of previously closed businesses, employment surged unexpectedly.  At the same time, pent-up demand, stimulus checks, and generous unemployment benefits led to a reacceleration of commercial activity. Still, not all is rosy.   In his recent testimo
Post a Comment
Read more

Sound Advice: December 13, 2023

What You Need To Know About Long-Term Care Insurance Long-term care insurance (LTCI) is a type of insurance that helps cover the costs of long-term care services, such as assistance with activities of daily living (ADLs) such as bathing, dressing, and eating. It can also cover the expenses associated with care in a nursing home, assisted living facility or at home by a professional caregiver. Here's what you need to know about long-term care insurance: 1. Not Covered by Health Insurance or Medicare: Long-term care services are generally not covered by health insurance or Medicare, which only provide limited coverage for skilled nursing care and rehabilitative services. Medicaid covers long-term care, but you need to meet strict income and asset requirements. 2. Costs of Long-Term Care: Long-term care can be expensive and can quickly deplete your savings. LTCI helps to cover these costs, providing financial security and ens
Post a Comment
Read more

Sound Advice: May 17, 2023

Say hello to PEG No, she’s not a new neighbor.   PEG is the acronym for Price-to-Earnings Growth Ratio.   Although stock analysts tend to litter their conversations with shop talk such as PE (Price-Earnings Ratio), ROI (Return on Investment), and Debt-to-Equity Ratio, PEG may well be more telling about the level of stock valuations. The process of evaluating stocks begins with evaluations of the underlying companies.   This includes income statements (a.k.a., profit and loss statements) and balance sheets. Concerns about income statements focus on the trends in earnings, which include profit margins, tax rates, and net income.   What’s important here are the trends over time.   Are margins rising or at least holding their own? Are tax rates following a consistent pattern or have there been interim aberrations? And is the bottom line expanding? Flat or rising margins are good.   Level tax rates are also OK, but if there’s been an outlier, what would have been the impact on net i
Post a Comment
Read more