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Jun 14, 2017

Tech Sell-Off: A Great Lesson On Why Diversification Is Important

Big reminder: Tech stocks can be volatile, or subject to big swings in their share prices.

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Tech stocks have been on fire all year, but they recently took a beating in a recent tech sell-off.

On Friday, the NASDAQ, the largest index of publicly traded technology stocks in the U.S., shed about $100 billion. Until that point, the tech sector had been up about 17% for the year.

It’s a reminder, experts say, that tech stocks can be volatile, or subject to big swings in their share prices. That’s why it’s a good idea to diversify, and invest in a variety of industries, geographical regions, and categories of businesses. That way your portfolio won’t take as big a hit when a sector has losses.

What the tech sell-off means

Here’s a closer look at what happened last week:

Just five companies caused the big swing, according to Bloomberg. Those stocks are Apple, Microsoft, Alphabet, Amazon and Facebook.

They account for 30% of total weighting of the NASDAQ index. Over the last few days, they were responsible for 75% of the index swing, according to reports.

The biggest loser was Apple, whose stock had fallen by 6.2% percent by Monday, shedding $50 billion of value on concerns about iPhone sales. Google’s parent company Alphabet lost about 4% of its stock value, and $30 billion worth of market cap, and Microsoft lost 3%, or about $17 billion of market cap over the same time period.  

Since Monday, the NASDAQ has begun edging up again to regain some of its losses.

Nevertheless, the selloff is a sign that investors are shifting their cash around, moving into stocks that may be undervalued, such as financial and energy, some experts say.  

Jeremy Quittner is the editorial director for Stash.

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