Young savers bet everything on tech stocks
First-time investors are drawn to the tech giants ‘like a moth to a flame’. This is not a recipe for success, writes Harry Brennan
Novice investors are risking their financial future by putting their savings directly into popular technology companies, leaving them overexposed to one sector and vulnerable to a wipeout in the event of a market downturn, experts have warned.
Investors’ money has poured into the so-called “Faang” stocks: Facebook, Amazon, Apple, Netflix and Google (which trades as Alphabet). This has helped to fuel the brands’ unrivalled growth, with both Apple and Amazon recently reaching trillion-dollar valuations.
The stocks are popular with younger investors, who buy direct holdings in an effort to share in the success of the tech giants that pervade their daily lives.
According to Trading 212, a share dealing platform, its younger customers have about 60pc of their portfolios invested in large technology companies.
Investing directly in shares can offer a greater return on your investment than placing your money in funds, but concentrating on just a handful of similar companies will reduce the diversification in your portfolio, meaning you are more exposed to market risk.
Leonard Austin, 37, works at a technology start-up company in London. He has invested in Faang stocks Facebook and Google, as well as a number of other tech companies including Microsoft, the “cloud computing” firms Twilio and Box, and Snap, the messaging app. He also invests in exchange-traded funds (ETFs), but began buying individual shares about a year ago.
“I am relatively new to buying stocks and have been drawn to investing more in technology companies because I work in the industry an and that’s what I understand. I live and breathe this stuff,” he said said. He added that he had taken advantage adv of volatility in the tech co companies’ share prices to buy more stock when valuations were low. These consumer-favourite firms a are often in the spotlig spotlight, and negative news s stories can spook invest investors. The Faangs collec collectively lost $60bn (£46b (£46bn) in value in one night last month after US go government action broug brought the sector’s future into q question. Mr Austin has invested about £4,000 in indiv individual shares so far and is adding about £500 a month to his share-dealing account.
People are biased towards investing in the companies, regions and sectors they are familiar with, according to Barclays Smart Investor, an investment service. It said many users ended up with portfolios of a few wellknown British companies.
Adrian Lowcock of Willis Owen, a rival service, said: “This is probably the most common behaviour we see among new investors and the result is usually not great for them as they get put off from investing. The decisions are driven by emotion – either fear of missing out or excitement over the potential opportunity.”
He said investors had flocked to the Faangs but recent buyers were likely to have missed out on the best gains as the tech titans were so well known that their valuations could be overstated. He added: “The problem is that when the market’s views of these companies comes back down to earth, the share prices often tumble and new investors are left with significant losses and a bad experience of investing. The lessons they learn are not necessarily the right ones.”
Brian Dennehy of FundExpert, another investment shop, said: “Certain behavioural traits are deeply ingrained in investors. One is the tendency for first-timers, typically twentysomething males, to be drawn to the brightest star, like a moth to a flame. They take highly concentrated risks and ultimately lose money.”
Mr Dennehy said there was a certain hysteria surrounding the Faang stocks Amazon is the largest holding of this investment trust, which also includes Tesla and Netflix in its top 10. The trust is currently trading at a premium of 3.2pc relative to the value of its assets. This fund lists Apple, Amazon, Microsoft and Google in its top 10 holdings and has about 20pc of its assets invested in tech companies. It is run by three managers and has a fee of 1pc. Consistently outperforming its peer group since 2015, this fund has Facebook, Microsoft and PayPal in its top 10, with tech accounting for more than 35pc of its holdings. Many techheavy funds are invested in America, but this fund focuses on Asian and emerging economies. Its top 10 includes Samsung, Alibaba and Tencent. As a wild card, our experts singled out this UK-focused fund. It invests just under 30pc of its assets in smaller tech firms and could be a way to invest in the next Microsoft, Mr Dennehy said.
‘I invest in tech because that’s what I know – I live and breathe the stuff’
Tim Cook, the boss of Apple, poses for a selfie, main; right, Leonard Austin