Now is the time to invest in top tech companies
The S&P 500 is having another tremendous year, recently up nearly 25% year to date. Over the past five years, the broad index is up some 84%, leading some to wonder whether the stock market is due for a slowdown or whether a bear market may be around the corner. For growth investors, rather than picking stocks individually, a safer approach nowadays may be to invest in an exchange-traded fund (ETF) that’s less vulnerable to a single stock’s fortunes and can still generate solid long-term returns. So consider the Vanguard Growth ETF (ticker: VUG). It can be an ideal investment to buy and forget about.
With an ultralow annual fee of just 0.04% (costing you $4 for a $10,000 investment), the ETF has positions in large U.S. stocks. As of the end of November, it contained 182 stocks, with the technology sector accounting for about 57% of its total value. Apple, Nvidia, Microsoft and Amazon.com were the fund’s top holdings, making up 39% of its total value and giving investors a position in the world’s leading growth stocks. These stocks have helped the fund average annual gains of 19% over the past five years and 15.6% over the past decade.
Investing in top tech companies can be a good way to position yourself for strong returns in the long run. (The Motley Fool owns shares of and recommends the Vanguard Growth ETF.)
Ask the Fool
Q: I bought a stock at its all-time high. It’s fallen since. Did I buy at a too-high price? Should I sell? – C.P., Keene, New Hampshire
A: First, stop thinking about your purchase price. It doesn’t matter much anymore, except when you’re selling and need your “cost basis” to determine your capital gain (or loss) for tax purposes.
So look forward instead of backward: Focus on the stock’s current price, and try to estimate its intrinsic value – its true fair price. Whether you’re sitting on a gain or loss, what matters most is where the shares are now and where you think they’re headed. If shares are around $50 and you think they’re worth $35, you might sell – unless the company is growing briskly and you plan to hold for a long time. If you think the shares are worth around $60, then hanging on makes sense.
It’s rarely wise to hang on to shares of a company you’ve lost confidence in, and holding on hoping to gain back losses often leads to further losses. It’s often smarter to sell and move whatever money is left into better investment ideas.
Q: What’s a stock’s “float”? – S.N., Winona, Minnesota
A: It’s the number of shares available for the public to buy and sell. That’s different from “shares outstanding” – the total number of shares that exist – because shares may also be held by institutions that don’t plan to sell, or insiders whose trading is restricted, among other entities. What’s important is that those shares can’t be bought on the market.
Companies with relatively small floats can be extra-volatile, as demand from would-be buyers may greatly outstrip the available supply of shares.
My smartest investmentMy smartest investment is probably my husband’s most regrettable one. In 2000, he and I had just started investing, and we didn’t have a lot of money. We bought a few shares of a tech stock. Some years later, the stock price had doubled. He wanted to sell, but I thought the company still had upside potential. Like most things in our marriage, we compromised. He sold “his” half of the shares, and I hung on to mine. “My” half of the investment is now worth over $208,000 – a $207,000 gain! The stock? Apple. He and I have laughed about this for two decades. It was the only time we sold stock without both of us agreeing about the sale. – P.D., online
The Fool responds: That’s a great story, and a great reminder that when you own stock, you don’t have to sell or hang on to all of the shares. If you’re not sure what to do, you can always compromise and sell some. Similarly, when buying, you might build a position in a stock over time, buying shares incrementally. If you’re invested in a promising company that’s performing well, hanging on is often a smart move – because it might double and double and double for many years.