New technology can be an excellent addition to any investor’s portfolio. Biotech, Blockchain, advanced computing, robotics, and AI are just a few of the areas where investors can share in growing industries’ profits.
Although new technology is often a good investment, there are a few caveats that investors should keep in mind when they are constructing their portfolios. Tech entrepreneur Daniel Yomtobian from Los Angeles, California, explores the pros and cons of investing in new technology.
The Pros of Investing in New Technology
Special Market Niches
One of the biggest advantages of investing in new technology is that each company has its own market niche, which may solve a new market problem. Forward-thinking innovation can create a market niche where one did not exist in the past.
When a new company’s work catches on in the market, it quickly attracts attention from investors. Increased investor interest can drive up stock prices, making your portfolio worth more. In addition, getting media attention can draw in more public interest.
Ideas Create Money
Technology depends on new concepts. Consider the example of Amazon, a company that started as a small online bookseller. They eventually grew to challenge the concept of retail throughout the world and to take on an amazing market share compared to other websites and brick-and-mortar stores.
Google is another company that shows the incredible potential of a new way of thinking about technology. Rather than creating a new idea, Google made their product the best among several competitors, eventually driving many of them out of business. Not every tech stock will turn out to be Amazon or Google, but it’s worth considering their example of how tech stocks can pay off significantly.
When a company hits its IPO, the cash infusion will often help develop its products in record time. A small investment made pre-IPO can become huge if the investor is smart. Established companies may turn a more consistent profit from year to year, but new companies frequently beat the curve when making money right away.
Doing Good for the World
When you invest in a biotech stock, for example, you may be helping to provide a new treatment for a serious disease. Your investment will help the company fulfill its mission of advancing medical care.
The Cons of Investing in New Technology
Higher Potential for Risk
Unfortunately, new technology has a higher potential for risk than companies making an established product. Companies making new technology are often new themselves, and they may be subject to many of the same market pressures that affect new companies of any kind.
New Tech May Be Difficult to Understand
A tech IPO can be difficult to comprehend at times. A quick tip to follow is that you shouldn’t invest in it if you don’t understand what the company does. Before you fall for the splashy advertisements, ask some hard questions about this technology.
Ask the company how popular their product is. Decide whether you would use it yourself. Find out what the company’s position is in the business and who their competitors are. Judge for yourself whether their management is trustworthy.
Their Methods of Making Money May Be Questionable
An IPO-level company may not have high profits yet. They may be making most of their money from investors like you while developing their products and preparing them for the market. Companies with new products need to spend a lot of money on R&D, product testing, and marketing research. They may not have the ability to return your investment for quite some time.
Not every tech company will be successful. Sometimes, they misjudge their markets or create a product that does not work in the real world. Early-stage investors in tech companies, especially angel investors, are accustomed to this type of risk because they have significant personal reserves of cash. The small-time investor should probably avoid early-stage investing.
Finding the Right Investments
Daniel Yomtobian believes that prospective investors should thoroughly vet the companies they want to fund, pick out any executive team problems in the conception of the product and its eventual production.
When you find a new and trustworthy tech company, you can feel good about taking a measured risk when supporting their efforts.