Are tech stocks still a smart investment?

We’ve read a lot of negative headlines recently about big tech companies behaving badly. Issues like privacy concerns, monopolistic powers and unregulated influences among digital players seem to make the news on the regular. From an ethical POV, does this mean we should consider removing the technology sector from our investment portfolios?

It’s a timely summer query, especially if you’re currently dockside practicing a digital detox. I mean, if it’s good for your health, is it good for your investments, too?

Removing certain companies and sectors from a portfolio is a long-established practice. Many people specifically state that they do not want investments in companies like alcohol producers or in defence contractors for ethical or personal reasons. But, avoiding technology can be more complicated.  

For starters, just defining technology is a challenge. Many consider Amazon and Netflix, “technology” investments given they fall under the bandied-about FAANG acronym, but are they actually tech companies? Not according to the stock market. Amazon is classified as a “consumer discretionary” company in the stock market, and Netflix is classified as “communications services.”

Second, technology is currently the largest sector in the S&P500, with a weighting of slightly less than 22% as of May 2019. Eliminating all tech stocks would mean that your portfolio would have a significantly different weighting than the broad indices that you hear about in the news, potentially causing your investment returns to diverge over time.

Third, not all tech companies are created equal. While the media has written about a few bad actors, there are other tech companies that have actually taken advantage of these headlines and positioned themselves as companies that will protect your personal data or act more ethically.

Bottom line: follow your gut. If there are individual companies that make you feel uncomfortable due to their business practices and ethics, investigate whether you want them in your portfolio. But don’t hit the delete button without first doing your homework on what’s really going on behind the headlines.