Use caution when shifting your strategy to the “new economy”

As the pandemic accelerates existing technology growth, it's important to keep history in mind Tailoring Your Investment Strategy to the “New Economy” The epicenter of the economic crisis has largely been in services, severely bruising industries like retail, hospitality, travel, food services, and airlines. As these areas of the economy struggle to survive, many technology companies have been thriving. The economy has been steadily evolving into ‘digital everything,’ and companies that build and/or service the digital infrastructure have seen rising demand. Many investors are noting this trend and flocking to companies at the forefront of enterprise cloud, remote work, e-commerce, cyber-security, and digital advertising. That’s why I think now is a good time to urge caution. The growing enthusiasm among investors to rotate heavily into technology, in an effort to capture trends of the ‘new economy,’ comes with its own set of risks. For one, looking back to the 1990’s offers some lessons to consider. Take 1999, for instance, which was the apex of the technology bubble. Perhaps the biggest story of the year in the stock market was for a company called Xcelera.com, which was formerly known as Scandinavia. Never heard of it? That’s because today it is no longer a public company. A similar story that year was enthusiasm for a company called Commerce One, whose business model was focused on using online auctions to connect businesses with suppliers. When the company filed its IPO in 1999, the stock shot up 190%.1 It filed for bankruptcy four years later. Still, there were other darlings of the tech bubble in 1999 whose businesses withstood the test of time. Qualcomm was one of the best performing stocks in 1999, and remains a strong company to this day. The point I’m making here is that rapid-fire growth in a sector like technology almost always produces a set of winners and losers, with the losers usually far outnumbering the winners. For investors hoping to ‘ride the wave’ of digitization in a post-Covid world, it is important to recognize that many companies in the emerging space will ultimately not do very well, or even survive. It is very difficult to predict who the winners will be. --------------------------------------------------------------- [Other Than Tech, What Sectors Should You Be Focusing On?]( While tech is flourishing, you should not forget the importance of diversification. So, instead of narrowing in only on tech, I recommend keeping your eye on other top sector picks. Our just-released stock market outlook report looks at Zacks S&P 500 top picks as well as other key factors impacting the market today. Our just-released Stock Market Outlook report contains some of our key forecasts to consider such as: - S&P 500 yearend targets - Is it time to buy stocks? - What should you think about ‘unbelievable’ jobs data? - International outlook - Zacks Rank S&P 500 sector picks - Impacts of Coronavirus - And much more. If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! [IT'S FREE. Download the Just-Released August 2020 Stock Market Outlook2]( --------------------------------------------------------------- Another reason I would urge caution is that tailoring your investment strategy to the ‘new economy’ may mean chasing past performance and/or over-concentrating your portfolio in one sector – two classic investment errors, in my view. You have probably heard a thousand times that past performance is not indicative of future returns, but it is an easy principle to forget when a category like technology has been outperforming so robustly and has a solid growth outlook. Technology will not outperform forever. Shifting a portfolio heavily into technology stocks may also mean sacrificing diversification in the process. Diversifying a portfolio helps reduce risk over time because you maintain exposure to uncorrelated assets – when some sectors zig, others zag, and vice versa. Technology cannot continue outperforming indefinitely, and when leadership changes hands, which in my view is only a matter of time, it is important for investors to have some exposure to whatever category emerges as the new leader. That is not always possible when you’re over-allocated to one sector. Bottom Line for Investors I am not urging caution in this column because I think the digital evolution is a phase or a fad. I believe many of the accelerating trends that we are seeing today, such as remote work, cloud, e-commerce, and digital infrastructure, were already happening before Covid-19 arrived. The pandemic is merely accelerating trends that were already underway. I’m urging caution because I think it is important for investors not to over-commit to these accelerating trends, particularly if doing so means over-concentrating your portfolio’s allocation to one sector and compromising portfolio diversification in the process. To help you look at the whole picture and other sectors and stocks that are doing well in addition to tech, I am offering all readers our [Just-Released August 2020 Stock Market Outlook Report](. This Special Report is packed with newly revised predictions that can help you base your next investment move on hard data. For example, you'll discover Zacks’ view on: - S&P 500 yearend targets - Is it time to buy stocks? - What should you think about ‘unbelievable’ jobs data? - International outlook - Zacks Rank S&P 500 sector picks - Impacts of Coronavirus - And much more. If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! [FREE Download – Zacks' August 2020 Stock Market Outlook Report3]( --------------------------------------------------------------- ABOUT ZACKS INVESTMENT MANAGEMENT Born from Research – Built for Performance Zacks Investment Management was born out of one of the country’s largest providers of independent research, Zacks Investment Research. 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