Tech stock funds might lead the next bull market
— -- If you got to work via jet pack today, or simply took the Trans-Infindibulum Expressway to visit your relatives on Neptune, you know that technological advances can happen overnight. Either that, or you need to dial way back on the nutmeg in your morning latte.
Great technological advances can change daily life and, in the process, make some people very rich. Unfortunately, figuring out which advances are going to succeed and which aren't isn't easy. If you want to take a bet that science will take a great leap forward, then you probably should own a science and technology fund. But a better reason to buy a tech fund is that the tech companies that have survived the past decade are surprisingly strong, and their stocks are relatively cheap.
Investing in technology can be insanely lucrative, as Microsoft founder Bill Gates could tell you. But for every Microsoft, there are a dozen Wang Laboratories and Digital Equipment Corporations, all of which are in the great Spare Parts Department in the sky. Sometimes, the big success stories outweigh the big losers. Many times, they don't.
Consider this: The term "World Wide Web" first appeared in 1989, although the Internet had been around for some time previously. (Strictly speaking, the World Wide Web is just one service available on the Internet.) In 20 years, the World Wide Web has transformed how we share and use information. In that same period of time, entrepreneurs have created vast arrays of hardware and software to make Web browsing faster and easier.
One would think, then, that science and technology funds would have clobbered the Standard & Poor's 500-stock index. One would be wrong. The average tech fund has gained an average 6.9% a year the past 20 years, vs. 7.1% for the S&P 500 with dividends reinvested. The technology-laden Nasdaq composite has gained an average 6.4% a year.
The main reason for the relatively poor performance: Many companies have yet to recover from the enormous tech bubble in the 1990s, which was quickly followed by the enormous tech wreck in the earlier part of this decade. Microsoft stock, for example, has fallen 57% in the past decade. Intel has plunged 52%.
Related Stories
ABC News Live