Share your thoughts on our News & Insights section. Complete our survey to help us improve.

Investing insights

Investing in tech stocks – why diversification matters

With the rise in interest in technology stocks over the last year, we look at why investors should consider a diversified portfolio and how to do it.

Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

As we’ve seen through the ‘Magnificent Seven’, tech powers our social and commercial infrastructure like never before. From social media with Meta, cloud computing with Microsoft, chip technology with Nvidia, electric vehicles with Tesla and more.

The tech industry has had a host of successes and though the failures might not make the headlines today, they’re far from forgotten.

But that doesn’t mean you should only back tech. Here’s why

This isn’t personal advice. If you’re not sure an investment’s right for you, ask for financial advice. Investments can rise and fall in value, so you could get back less than you invest. Past performance isn’t a guide to the future.

Time in the market matters

At the start of 2024, we’ve seen some disappointing results in tech.

Tesla’s first quarter revenue results fell 9% to $21.3bn for example, reflecting lower vehicle production and deliveries. And profit fell by 56% to $1.2bn as it increased it’s capital expenditure to invest in growth for the future including AI.

The stock market and sectors are driven by macro-economic events, innovation, politics, resources, fuel and many more. Winners can in an instant turn into losers and vice versa.

Each sector will face numerous challenges that can influence short-term and long-term performance. So, a long-term approach can’t be reliant on the fates of a few companies.

The saying goes that it’s about the time in the market, not timing the market.

It’s all about investing for the long term.

For more than 100 years, in 91% of 10-year periods, the stock market has performed better than cash.

Investing is about patience, perseverance, and managing your risk – deciding how much to take and how comfortable you are with it. The results tend to follow afterwards and in good time.

What’s the other secret to investing success?

A balanced, but sensible, approach is a diversified portfolio.

This is a portfolio holding different investments, from different countries and sectors, as well as a range of different types of investments like bonds, funds and shares.

The importance of diversification is you’re not sacrificing a potential win by doing so. By being spread across lots of investments, some things will do well to pick up the slack as other things do less well.

You need to challenge your fears on missing a stock market rally or linking a past phenomenon to a future outcome. Investing is a marathon, not a sprint and past performance is never a guide to the future.

With diversification, you’re aiming to smooth your returns so as things change, your portfolio can stay on track, helping to ease any bumps along the way.

This is where strategic asset allocation comes in.

What is strategic asset allocation?

Most professional investment returns are defined and driven by strategic asset allocation. And anyone can do it too.

When you build your portfolio, you tune your choices to deliver on your long-term outcomes. This should be based on your goals and how much risk you’re happy taking.

You pick a target allocation (how much you’re investing), for each investment type, sector and geographic area and stick to it.

It’s something that you’ll need to monitor and visit on a regular basis if you’re managing the portfolio yourself, but the stock and other investments you pick should be following this long-term view.

Managing your asset allocation will always be an ongoing and evolving process.

It’s a term that might sound confusing, but asset allocation is simply a strategy for investing. Watch this video to learn more and find out the difference between strategic asset allocation and tactical asset allocation.

Want someone to do the hard work for you?

To take the stress out of investing, we’re launching a new range of low-cost multi-index funds.

There are four funds to choose from based on the level of risk you want to take. And it’s the only investment you need.

Our expert fund managers will take care of day-to-day management, picking investments that track the market. They’ll manage the portfolio, aiming to get the best return for your chosen level of risk over the long-term.

They’ll also take care of the asset allocation, so you don’t have too much invested in any one area, like tech.

You just need to check in every so often (we suggest every six months) to make sure it’s still right for you.

You can invest from just £100 as a lump sum or £25 as a monthly direct debit.

Invest by 11:59pm 5 June to get the fixed £1 per unit launch price.

Investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest.

HL Funds are managed by HL’s sister company, Hargreaves Lansdown Fund Managers Ltd.

Latest from Investing insights
Weekly Newsletter
Sign up for Fund insight. Receive expert fund insights direct to your inbox every week, including research, investment articles and in-depth sector reviews.
Written by
Terence Darko
Head Investment Specialist
Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 24th May 2024