What to do if you’re worried about tech exposure in your portfolio

marekuliasz | iStock | Getty Images

Some big names suffered deep stock losses last week as they reported earnings.

Four companies — parent company of Google Alphabet, Amazonfacebook parent Meta and Microsoft – paid collectively more than 350 billion dollars from their market capitalization, the measure of the total value of all their shares.

Apple was a beacon of hope, with its stock soaring on Friday after beating expectations.

Investors worried about the technology sector can take comfort in the fact that the current shift is not the same as that of 2000, according to Larry Adam, chief investment officer of Raymond James.

A key difference is that the companies in question are now more robust, with profits and, in some cases, dividends on the rise, he said.

As some companies take a hit on their stocks, the biggest takeaway is not to overreact, Adam said.

But it would be wise for investors to monitor their exposure.

The biggest names in pure tech — Apple, Microsoft and Visa — make up more than 45% of revenue in this space, according to Adam.

Alphabet and Metawhich technically fall under communication services, represent 53% of revenues in this sector. Amazon is a major player in consumer discretionary.

“Technology is more dynamic than it was,” Adam said. “It’s in different components and sectors of the economy and the stock market.”

While investors may think they’re diversified by holding different funds, they may actually have a lot of duplication in those holdings — and more tech exposure than they realize, said Ryan Viktorin, vice president and financial consultant at Fidelity Investments.

“It’s always about making sure you don’t end up in an unbalanced portfolio,” Viktorin said. “You always want to go back to, ‘Am I diverse for the timeline I have, for the risk tolerance I have, and for the goals I’m trying to achieve?'”

Here’s how.

Assess the real risk of your portfolio

The increased volatility has caused many clients to wonder, “Am I still okay?” said Viktorin, who is a Certified Financial Planner.

“The most important thing about an allocation or a portfolio is getting to a place where you can stay invested no matter what,” she said.

The actual risk of each investor may vary depending on his or her situation. For example, someone who works in technology is already taking substantial risks outside of their portfolio because their income depends on the sector, Viktorin said.

Ideally, you should be in a sufficiently diversified allocation to be able to weather a recession and successfully exit the other side, she said.

Find the value

To buy and hold for the long term, investors must design an allocation that allows them to do so, according to Mark Hebner, president of Index Fund Advisorsan Irvine, Calif.-based company that was No. 66 on the 2022 CNBC Financial Advisor 100 list.

To do this, Hebner said he prefers to underweight growth stocks in favor of stocks in the value category.

Growth stocks are generally companies with high ratios between market value and book value. While these stocks anticipate growth, value stocks tend to outperform, according to Hebner. In particular, tech stocks have value exceeded since the financial crisis, but there are signs upgrading is in progress.

Learn more about personal finance:
What the next Fed rate hike means for you
Why Fear of Missing Out Can Be a Killer for Investors
Tips to help you stretch your salary in a high inflation environment

Since 1928, the return for US growth stocks has been 9.76% versus 12.6% for value stocks. Additionally, value stocks also outperformed growth in international and emerging markets.

“You want to design an equity allocation that gives you exposure to a small value in your allocation,” Hebner said.

Funds that offer that exposure to small-value indices, through Russell in the U.S. and MSCI internationally, can help, Hebner said. Fund providers to look for can include iShares, Vanguard and Dimensional Fund Advisors, he said.

Comments are closed.