HOW VULNERABLE IS YOUR 401(K) TO ‘TECHLASH’?
You might be taking a big financial hit — and not even know it
Even if you don’t own individual shares of Facebook, the falling stock might not be a friend to your 401(k).
Indeed, the “techlash” and share price free fall that have recently engulfed popular tech companies such as Facebook, Amazon, Netflix and Tesla might be causing you financial pain — without you even knowing it.
The reason: You likely hold tech stocks in your retirement portfolio through index funds — and a lot more than you might think.
There has been a major shift in retirement investing away from individual stocks and toward so-called “passive funds,” or low-cost funds that track major stock indexes such as the Standard & Poor’s 500. And right now, thanks largely to the information technology group’s nearly 37% gain last year, tech accounts for roughly a quarter of that index, which is by far the biggest industry group represented.
“There is definitely a lot more tech exposure in people’s portfolios than they might realize,” says Ken Mahoney, CEO and financial adviser at Mahoney Asset Management in Chestnut Ridge, N.Y.
And when these stocks are rallying, like they have been for the past year, it is the equivalent of investors reallocating more money toward tech without knowing it, Mahoney adds.
That means more risk when prices decline. And prices of the most popular tech stocks have suffered steep falls this month on fears of a coming regulatory crackdown to technical mishaps involving autonomous cars and heightened investor anxiety over the future outlook for cutting-edge tech companies.
A wave of bad news has turned investors’ optimism regarding life-changing technology stocks to skepticism.
Facebook’s data privacy crisis, for example, has boosted the odds of coming regulation for social media companies, a potential obstacle to company profits that could also ensnare Twitter and Google parent Alphabet’s ad search business.
Shares of Tesla have taken a hit as National Transportation Safety Board investigators try to determine whether a deadly crash of a Model X vehicle involved the company’s Autopilot system.
The negative headlines along with worries about a possible trade war between the U.S. and China have damaged tech stock prices.
Facebook shares have fallen more than 17%. Twitter shares — down 22% since their March 14 peak — plunged 12% Tuesday when a Wall Street analyst said it was the social media stock most exposed to regulatory risk in the wake of Facebook’s data privacy scandal.
Amazon shares cratered 4.4% Wednesday and are down 10.4% from its recent high on March 12.
Tesla fell nearly 8% Wednesday on news of the crash investigation and a credit downgrade from a Wall Street bond-rating agency, which erased roughly $3.6 billion of its market value.
Since March 16, the last close before the Facebook scandal hit, the S&P 500 has lost 5.3%, with tech responsible for a sizable chunk of the fall.
“These behemoths are now being viewed more skeptically,” Jason Trennert, managing partner of Strategas Research Partners in New York, told clients.