I get a lot of questions from you folks here at the Strategic Tech Investor.
And the single most frequently asked query is this one:
"Michael, what's the best way to get started as a tech investor?"
I'll grant you: As questions go, that's probably the most basic one that you'll find.
But I'm a firm believer in the theory that there's no such thing as a stupid question.
Indeed, I actually view this as one of the smartest questions an investor can ask. And it isn't just being raised by folks who are just starting out as investors: We've also heard from those of you who are trying to get a fresh start - and are attempting to rebuild your wealth after a personal financial wipeout.
A question this great deserves an equally terrific answer.
So today I'm going to tell you about the three very best "building-block" investments in tech - profit plays so powerful that everyone investing in tech should put them to use.
Beginners can use them to put their financial futures on the launch pad.
And market veterans can use them to shoot their net worth into the stratosphere.
When you add in the fact that each of these three profit opportunities are a lot less risky than the leading tech highfliers - meaning they're perfect for the up-one-day, down-the-next market we're facing right now - the real question to ask is this:
"If you're not holding each of these three tech profit plays, what are you waiting for?"
"Building" Wealth by Investing in Tech
Here at Strategic Tech Investor, we love high-quality tech stocks.
And we put a lot of faith in the building-block power of tech-themed exchange-traded funds (ETFs).
ETFs offer broad access to some of the tech sector's top performers - often for an initial investment of less than $100 - while also squeezing down the risk posed by holding individual stocks.
However, there's a problem - or, more accurately, a challenge: Because most investors have the bulk of their wealth in restricted retirement accounts - such as a company 401(k) - they might not be able to funnel money into these powerful investment vehicles.
That's okay, though, since there's an alternative ...
Three, in fact.
And each one is terrific.
I'm talking about three more-conventional mutual funds - each of which gave investors a gain that was twice that of the overall market. We refer to them in-house here as our three "Tech-Wealth Building Blocks" - and with good reason.
Our mantra here at Strategic Tech Investor is that "the road to wealth is paved by tech." Well, if we say that great wealth is the ultimate destination of the journey we're trying to help you take, then these three funds are like an "Investment EZ-Pass" that will make this trip as fast, safe, and hassle-free as possible.
So let's take a look ...
Tech Wealth Building Block No. 1: Rydex Series Trust Internet Fund (MUTF: RYINX) - Recent Price: $71
Most people see the Internet as a great way to shop, peruse the news, and grab videos, movies, and music.
I see it as a license to print money.
After all, with no factories to build and no machinery to install and maintain, sector leaders can generate almost-obscene amounts of cash.
And with its portfolio of roughly 40 stocks, Rydex Series Trust Internet Fund (MUTF: RYINX) has it all: search engines, software and media, and even some of the companies whose hardware makes the web work.
Priceline.com Inc. (Nasdaq: PCLN), a proven name in online travel, and Baidu Inc. (Nasdaq: BIDU), the largest search engine in China with a roughly 75% market share, are only two of the powerhouse stocks that make the Rydex Series Trust Internet fund so appealing.
Other noteworthy holdings include:
- Google Inc. (Nasdaq: GOOG), the global search leader that's also a catalytic force driving the mobile wave. This Internet giant brings an expansive market cap of $380 billion, a profit margin of 21.6%, and a return on equity (ROE) of 15%.
- Amazon.com Inc. (Nasdaq: AMZN), the widely known ecommerce leader with a record of predictable growth. With a market cap of $160 billion, margins remain thin, but the stock gained 84% over the past two years. The company has more than $6 billion in net cash.
- Netflix Inc. (Nasdaq: NFLX), the king of online streaming video whose most recent results were a staggering 20% above Wall Street expectations. With a market cap of $24 billion, the stock returns 11% on equity and generated more than $2 billion in free cash flow last year.
With holdings like these, it's no wonder that RYINX more than doubled the market return over the past year - returning 34.5%, compared with the Standard & Poor's 500 Index gain of 15.8%.
Tech Wealth Building Block No. 2: Ivy Science and Technology Fund (MUTF: WSTYX) - Recent Price: $50
In addition to a strong performance - its one-year return is 35% - Ivy Science and Technology Fund (MUTF: WSTYX) offers a way to invest in such big-tech trends as software, advanced computer memory systems, and LED lighting.
For instance, WSTAX holds Aspen Technology Inc. (Nasdaq: AZPN), a software firm whose offerings help manufacturers control costs, boost supply chain efficiency, and widen profit margins. Aspen has won a number of industry awards and returned 46% to investors over the past year.
The Ivy Science and Tech Fund also holds Microsoft Corp. (Nasdaq: MSFT), maker of the world's dominant PC operating system (OS) and a leader in computer gaming. The shares of "Mister Softy" gained nearly 33% last year, almost double the gains of the S&P.
Some of WSTAX's other major holdings include:
- Micron Technology Inc. (Nasdaq: MU), the leader in advanced memory systems for computers, networking gear, and tech-laden "connected cars." With a market cap of $24 billion, Micron offers investors a profit margin of 16% and an ROE of 20%.
- Cree Inc. (Nasdaq: CREE), the frontrunner in the LED lighting market - by a wide margin. And Cree's hefty lead is showing up in its financial results: The company recently reported that its quarterly earnings were up a whopping 74% on a year-over-year basis. Cree has a market cap of $7 billion. It also has more than $1 billion in cash on hand with no debt.
- Alliance Data Systems Corp. (NYSE: ADS), a provider of database-marketing services and data analytics that is displaying some enviable financial results. With a market cap of $11 billion, ADS has return on equity of roughly 77% and operating margins of 26%.
Tech Wealth Building Block No. 3: T. Rowe Price Health Sciences Fund (MUTF: PRHSX) - Recent Price: $60
T. Rowe Price Health Sciences Fund (MUTF: PRHSX) is one of the top funds offered by the respected T. Rowe Price Group Inc. (Nasdaq: TROW), and we like it because this fund holds a bunch of high-profit-margin biotech firms.
We also like the exposure we get to such cutting-edge-science plays as Incyte Corp. (Nasdaq: INCY). This provider of genomic-technology platforms for disease research posted gains of 243% last year.
Other holdings in T. Rowe's health-sciences fund include such top biotech names as:
- Alexion Pharmaceuticals Inc. (Nasdaq: ALXN), the first developer of Soliris, a drug used to treat ultra-rare blood disorders. This proprietary compound helped power the $30 billion market cap Alexion to a profit margin of 16.3%, and an ROE of 11.6%.
- Biogen Idec Inc. (Nasdaq: BIIB), which recently won European approval for its multiple sclerosis drug Tecfidera, giving it access to one of the world's largest markets for MS treatments. The approval follows first year U.S. sales of almost $1 billion. With a market cap of $72.8 billion, Biogen has a profit margin of 26.8% and an ROE of 23.9%.
- Gilead Sciences Inc. (Nasdaq: GILD), owner of products that fight HIV/AIDS - as well as liver, heart, and respiratory diseases. The company also has products that target parasitic infections and blindness. With a market cap of $125 billion, Gilead has an ROE of 30% and a 28.55% profit margin. Gilead shares doubled last year.
We've labeled these three profit plays as "Tech Wealth Building Blocks" - after careful consideration.
For new investors - or veterans looking to rebuild their net worth - these funds offer exposure to some of the best growth trends in tech, as well as the companies doing the best job capitalizing on that growth.
The funds also offer instant diversification - especially important to folks who are getting into the market for the first time, or who might be moving back into stocks after a net-worth-robbing financial setback.
And, as the term implies, these "Tech Wealth Building Blocks" allow folks with only small amounts to invest the chance to amass a substantive net worth - even if it happens only a few dollars at a time.
Even better: If you're new to investing in tech, I recommend creating a disciplined investing regimen that has you put in the same amount of money on a regularly defined schedule - whether it's weekly, monthly, or even quarterly. Do that and you'll be surprised at how quickly your net worth begins to grow.
And have some goals. That includes having a dollar-amount goal - you know, something like "I intend to be a millionaire by the time I'm 40."
But have a purpose for that goal... whether it is a new house, college for your talented son or daughter, or the money you'll need for retirement. Numerical targets are nice, but tangible goals - like a house - give you something to visualize as you save and invest.
And those goals you can picture - your dreams - are what really makes the whole investing effort worthwhile.
Over the long run, these funds will take you as far as you want to go. And we'll stick with you, too - for as long as you want the help of the Strategic Tech Investor.
For us, it's having all of you for our audience that makes this twice-weekly visit worthwhile. So we'll continue to take occasional breaks from our stock recommendations to offer strategies like these that we believe will keep you on that tech-paved pathway to wealth.
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