NEW YORK - Investors should avoid putting all their eggs in
the technology basket for the
long term, one financial adviser contends.
High returns in tech stocks appear promising on the surface but often are not consistent enough to last over the years, according to Jerry Miccolis, a senior financial adviser with Brinton Eaton Associates Inc. of Morristown, N.J.
"Today's leaders could be tomorrow's laggards," he said. "Technology stocks can rapidly change direction without notice."
Also, as the tech industry continues to evolve, innovations can be obsolete in a matter of years, Mr. Miccolis added.
Through an analysis of asset classes that compared expected returns, return volatility and market correlation, he concluded that at any level of risk, the best-performing investments excluded tech stocks.
Between 1996 and 2005, tech stocks in the Standard & Poor's 500 stock index had an average annual return of 18%, while finance and health-care stocks had average annual returns of 15% and 13%, respectively, according to a press release that cited findings from Ibbotson Associates Inc. in Chicago.
However, big losses in the tech sector some years take a bite out of large gains other years.
Mr. Miccolis said that $100 invested into the sector in 1996 would have risen to $246 during that nine-year period, while the same $100 investment would have yielded $351 or $273 for finance or health care, respectively.
Those seeking to add technology to a diverse portfolio should consider broad-based small- and mid-cap indexes, he said.
"In the large-cap sector, people tend to make sector bets, which could be risky for the client," Mr. Miccolis added.
In addition, some say that investors also should avoid holding large amounts of stock in any single tech company.
"We usually tell our clients to keep a portion of their investment in tech stocks but not a majority or a greater percentage," said Thomas Balcom, a certified financial planner and investment adviser at Foldes Financial Management Inc. in Miami.