Young savers bet ev­ery­thing on tech stocks

The Daily Telegraph - Your Money - - MONEY -

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

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