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If you’re planning to sell an investment property or your own home this year, it’s important to be aware of the potential impact capital gains tax could have on your bottom line. Otherwise, you could end up with less money than you thought to put toward your next real estate purchase or another financial goal.

Fortunately, there are strategies that can enable sellers to avoid capital gains tax on real estate, either by legally deferring or avoiding paying taxes altogether on their real estate gains. Read on for some basic info on how the capital gains tax works and how you might be able to minimize the tax burden after a successful sale.

Understanding Capital Gains Tax on Real Estate

Selling a piece of real estate for more than you paid is usually something to celebrate — but don’t party too hard just yet. If the value of the property has increased substantially, you may have to make a hefty payment to the IRS to cover the capital gains tax on your profit.

The amount you might be taxed on your sale can depend on a few different details, including how long you owned the property, if it was your primary residence when you sold it, how much you made on the sale, and your household income that year. Here are some factors to consider:

Short-Term vs. Long-Term Capital Gains

The length of time you owned the property before selling it will determine whether your profit is a short-term or long-term capital gain. That could make a significant difference in how, and how much, it’s taxed — as well as in how to avoid capital gains tax on real estate sales.

•   If you sell the property after owning it for only a year or less, for example, the profit is considered a short-term capital gain, and you’ll be taxed at your ordinary income tax rate for the year you made the sale.

•   If you sell after holding the property for more than a year, on the other hand, the profit is considered a long-term capital gain, which makes it subject to preferential capital gains tax rates.

Long-Term Capital Gains Tax Rates

Whether you’re selling your primary residence or an appreciated investment property, the tax rate (0%, 15%, or 20%) that applies to your long-term capital gain will be based on your taxable income and filing status that year. Here’s what the rates look like for 2024:

Potential Exemptions

Before you start calculating (and stressing out about) what you might owe, however, it’s important to note there are exemptions that might help you reduce or even avoid paying taxes on your capital gains. These include the “home sale exclusion,” which can be used by homeowners who are selling their primary residence, and the “1031 exchange,” which allows investors to defer the taxes on a real estate sale by reinvesting their profit into a similar property. Here’s a look at how each strategy might benefit you, depending on your specific circumstances.

Deferring Capital Gains Tax with a 1031 Exchange

A 1031 exchange (named for Section 1031 of the Internal Revenue Code) allows those who invest in real estate to defer the tax obligation on a property they’ve sold by using the proceeds to replace it with a similar, or “like-kind,” property. This is how it works:

Qualifying for a 1031 Exchange

The property used as a replacement in a 1031 exchange must meet three basic requirements:

•   It must be a long-term investment. The property can’t be a quick “flip.” And it can’t be your personal home.

•   It must generate income while you own it through rental or some other use. You can’t buy the property and just hold onto it with a plan to sell it later.

•   It must be of the same “character and class” as the property it’s replacing. The replacement property doesn’t necessarily have to be used for the same purpose as the one that’s been sold, though. As long as both properties are used as investment properties that earn income, they generally can qualify as a like-kind exchange.

Deadlines and Rules

You can make a direct swap with another property owner to complete a like-kind exchange — if you can find the right property for your purposes. More often, though, sellers use a qualified intermediary (QI) to facilitate a “delayed” exchange. With this type of transaction, proceeds from the sale of your original property go directly to the QI to hold in escrow, and you must find and purchase a replacement property within a preset timeline following two main deadlines:

•   The 45-Day Rule: Within 45 days of closing on the original property, you must designate a replacement property — or properties — in writing to the QI; and

•   The 180-Day Rule: You must close on the new property within 180 days of selling the original property.

These two periods run concurrently, so you may want to find a real estate agent who can help you locate a new property before you complete the sale of the old one. Make sure you’re familiar with how to get a mortgage loan and the different types of mortgage loans before you begin the process of closing on the original property, and line up a home mortgage loan for the new property, should you need one.

Reverse Exchanges

You also may choose to do a reverse exchange, using those same 45- and 180-day deadlines, and still qualify for the 1031 tax deferral. In this case, you would transfer a qualifying replacement property to an intermediary, identify a property you already own that you want to sell, and complete the sale within 180 days of closing on the new property.

Reporting a 1031 Exchange to the IRS

You must notify the IRS of the 1031 exchange by submitting Form 8824 with your tax return for the year the exchange took place. It’s important to hold on to financial documents and keep good records, including descriptions of the properties involved, closing dates, and other details of the transaction. (Because this can be a complicated process to complete and report, you may want to consult with a tax professional before proceeding.)

Recommended: Investment Property Mortgage Rates

Saving on Taxes with the Home Sale Exclusion

Investors aren’t the only ones who can benefit from a tax break when selling a property for a profit. A tax provision known as the Section 121 Exclusion, or “home sale exclusion” allows homeowners who meet specific requirements to exclude up to $250,000 (or up to $500,000 for married couples filing jointly) of capital gains from the sale of their primary residence. Here are some basics that can help you determine if you qualify.

Ownership and Use Tests

To use the home sale exclusion, you typically must meet these requirements:

•   You must have owned and used the home as your primary residence for at least two of the five years leading up to the date of the sale. The two years don’t have to be consecutive.

•   The home must qualify as your primary residence. For example, it should be the address used on state and federal IDs, voter registration, filing taxes, and utility bills. And you can only claim this exclusion once every two years.

Calculating the Taxable Gain

Here’s an example of how the home sale exclusion might work. Let’s say, Joe, who is single, buys a house for $200,000 and sells it three years later for $500,000. His profit is $300,000; but after applying his $250,000 exclusion, Joe would pay capital gains tax on only $50,000 of the profit.

Depending on what Joe’s taxable income is in the year he makes the sale, he could pay a capital gains tax rate of 0%, 15%, or 20% on this reduced amount.

Other Strategies to Minimize Capital Gains Tax

The 1031 exchange and home sale exclusion are two popular methods for minimizing the tax on real estate capital gains. But there are other strategies you may also want to consider to reduce the tax blow to your bottom line.

Installment Sales

If you make a large profit on your property sale and want to spread out your capital gains tax liability over a period of several years, you may want to look at the benefits of receiving installment payments from the buyer instead of a lump sum. With this method, you would pay capital gains tax only on the portion of the gain you receive each year until the property is paid off.

Let’s say you’re an older couple hoping to sell your home and downsize to a less expensive home purchase or a rental in retirement. Or maybe you’re a young couple planning to sell your home in a high-priced city in order to move to a less expensive location so one of you can stop working and stay home with the kids. An installment sale would allow you to reduce your upfront tax burden and could provide a reliable income stream when you make this big life change.

Tax-Loss Harvesting

Tax-loss harvesting is another popular option for reducing long-term capital gains. Here’s an example of how it might work:

Let’s say you made a big profit on a real estate deal, but you also suffered a large loss on a long-term investment held in a taxable investment account. You may be able to use (or “harvest”) that loss to offset some of the gains from your successful property sale. Or, if you have long-term investments that aren’t doing as well as you’d like, you might choose to sell them for less than you paid and use the loss to help offset your taxable gain.

If it turns out your loss is more than your gains, you also may be able to reduce your ordinary income by up to $3,000 in that tax year. And you can carry forward any remaining loss — up to $3,000 per year — to future tax years.)

Charitable Donations of Real Estate

If your list of financial goals includes charitable giving, donating real estate directly to a qualifying charitable organization — instead of selling it, paying capital gains tax, and then donating the profits — could help you maximize the amount of your gift. You also may be able to claim a tax deduction equal to the fair market value of the property during the tax year when the gift was made, which could significantly reduce your tax burden. With this strategy, both you and your favorite charity could benefit.

Recommended: Real Estate Listing Terms Decoded

Planning for Capital Gains Tax in Real Estate Investing

Navigating capital gains tax in real estate can be complex, which means planning is a must. Here are a few things to keep in mind whether you’re hoping to sell a property (or properties) this year or in the future.

Record-Keeping and Cost Basis

One of the best ways to reduce your capital gains tax is to make the most of all the reductions the IRS allows. But you’ll have to back up any costs you claim. So holding on to financial documents you receive while you own the property is imperative — including the original closing documents from your purchase, receipts from any major improvements you made, the real estate purchase contract and the closing documents from the sale. As a general rule, it’s smart to track home-improvement costs for any materials and labor that increase the value of the property (in other words, not general upkeep expenses).

This information will help you determine your property’s cost basis (or adjusted cost basis if you made major improvements), which is the value that will be assigned to your home or real estate investment for tax purposes.

Seeking Professional Advice

Another way to make sure you’re getting every tax break you can when you sell your property is to work with a financial professional who’s experienced in real estate taxation. This could help you keep more of your money after the sale and avoid making a misstep that could lead to an expensive IRS penalty.

The Takeaway

Understanding how to avoid capital gains on real estate, and doing some proactive planning, could make a big difference to the bottom line of a successful property sale. And the more money you can keep in your own pocket, the more you’ll have to put toward your other financial goals — including buying your next home or investment property.

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FAQ>

What qualifies as a like-kind property for a 1031 exchange?

A “like-kind” exchange doesn’t mean the old and new properties have to be exactly the same size or in the same neighborhood. But the net market value and equity of the replacement property must be the same as, or greater than, the property that’s been sold — and it must be in the U.S. The properties also should have a similar purpose (selling one rental property and acquiring another, for example).

Are there any time limits for 1031 exchanges?

Yes, there are two main deadlines you’re required to meet to successfully complete a 1031 exchange. First, within 45 days of closing on the original property, you must designate at least one replacement property in writing to a qualified intermediary. Next, you must close on the replacement property within 180 days of selling on the original property. These two time periods run concurrently.

Can you use a 1031 exchange for a primary residence?

A primary residence typically doesn’t qualify for a 1031 exchange. The properties involved must be used as an investment or for business.

Photo credit: iStock/gorodenkoff

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SOHL-Q324-004

Every college major requires work, but some fields of study are more rigorous than others. For instance, you won’t find too many people who think that pre-med is a snap. While earning your undergrad degree isn’t going to be effortless, there are definitely some easier college majors out there that won’t be as taxing.

Choosing a less complex major doesn’t mean you’re doomed to a low-paying job for life. In fact, it can be quite the opposite. Read on to learn about 12 relatively easy college majors that can lead to jobs that pay well.

What Makes a Major “Easy”?

The workload for an easier major, like creative writing, probably won’t be as intensive as that of, say, biomedical engineering, neuroscience, or applied mathematics. You likely won’t have long lab sessions, tons of problem sets, and other arduous assignments.

This could make achieving higher grades a simpler proposition. Your noteworthy grades could, in turn, help you get a leg up after graduation. You might be able to step into a higher-paying job more easily, which could help you pay off any private school loans for college you might have.

A college major can also feel easier if it’s a field you’re interested in and passionate about. Your excitement about a major will likely make going to class something you’ll look forward to and the work required seem like less of a drag.

Recommended: A Guide to Choosing the Right College Major

12 Easy College Majors That Ultimately Pay Well

While getting an entry-level job paying a six-figure salary isn’t the norm for these easy college majors, you could still earn big bucks down the road.

Here, you’ll learn about 12 easy majors along with some average entry-level salaries and mid-career pay for positions within each field, according to Salary.com.

1. Marketing

A marketing degree opens up many career possibilities. People who major in marketing can find positions in all types of companies, industries, institutions, and nonprofits. Jobs in marketing include positions focusing on a business’s or brand’s strategy, sales techniques, advertising and communications, or public relations.

Marketing careers can pay off over time.

•   Average entry-level salary: $35,516 for a marketing assistant.

•   Average mid-career salary: $91,870 for a marketing manager.

As you see from that mid-career pay grade, a six-figure salary could be just around the corner.

2. Human Resources

With a college degree in human resources (HR), you can work in many different roles, including talent recruitment, benefits administration, DEI initiatives, or workplace development training.

In terms of landing a well-paying job, here are some salaries to note:

•   Average starting salary: $43,386 for an HR assistant.

•   Average mid-career salary: $94,576 for an HR manager.

3. Hospitality

Do you love looking at fab resorts and restaurants in your social media feeds? This major might be a perfect fit for you. With a degree in this field (which likely doesn’t involve any science labs), you might work in an array of positions. Some examples: hotel, resort, or restaurant management; event planning; or travel booking and tourism, among others.

Some salaries to note for this college major:

•   Average starting salary: $50,949 for an event planner.

•   Average mid-career salary: $76,898 for a hotel manager.

These figures are notably higher than $43,262, which Indeed cites as the current average starting salary in the U.S.

Recommended: Is $50K a Good Salary for a Single Person in 2024?

4. Communications

As one of the most popular college majors, a communications degree can prepare you for many different career paths. Marketing (mentioned previously) can fall under the umbrella of communications. Other areas for employment with this degree include public relations, advertising, journalism, writing, broadcasting, publishing, and social and digital media development.

A sample of the salaries you might expect at different points in your career:

•   Average starting salary: $51,928 for a corporate communications assistant or $45,955 for a social media assistant.

•   Average mid-career salary: $125,700 for a corporate communications manager and $116,090 for a social media manager.

5. Public Relations

Public relations (PR) has a broad reach. If you’re looking to capitalize on a degree in public relations, you might find a job in a small or large PR agency, a corporate PR department, or as an independent consultant to various clients. Since working in PR often involves frequent communication with clients and the public, this field can offer some of the better jobs for extroverts.

•   Average starting salary: $49,383 for a public relations specialist.

•   Average mid-career salary: $93,556 for a public relations manager.

6. Liberal Studies

A liberal arts or liberal studies major allows for a lot of flexibility and variety when it comes to job prospects. Students majoring in liberal arts or studies participate in a multi-disciplinary program, often including courses in humanities, history, art, literature, science, and philosophy. Earning a liberal studies degree can offer students a chance to develop many important “soft skills,” including problem solving, communication, and analytical and critical thinking.

Someone with a liberal arts degree may be drawn toward work in libraries, arts administration, government, or education and academia.

•   Average starting salary: $66,575 for a public policy analyst.

•   Average mid-career salary: $147,140 for a public policy manager.

7. Anthropology

Anthropology focuses on the study of humans in different cultures and societies, spanning various time periods and locations. It may not involve the kind of coursework that, say, studying law does, but it can be a fascinating field.

An anthropologist can work for ethnic or cultural organizations, museums, historical sites, research firms, or as a social or community services manager.

•   Average starting salary: $47,660 for a museum collectors curator.

•   Average mid-career salary: $64,962 for a museum director.

8. History

Knowledge of the past can be a powerful career springboard. Besides becoming a historian, history majors may find work in journalism, teaching, and politics. People with history degrees can also possibly find work at historical societies, museums, and libraries.

•   Average entry-level salary: $57,015 for a library archivist.

•   Average mid-career salary: $85,724 for a senior librarian.

9. Advertising

Advertising often taps a student’s interest in sales and contemporary consumer culture. Careers for advertising majors range from creative pursuits (copywriting or art direction, for instance) to more business-driven ones, such as being an account coordinator or a sales rep.

•   Average starting salary: $47,346 for junior copywriter, $45,686 for a junior graphic designer, or $43,300 for a junior sales rep.

•   Average mid-career salary: $122,524 for a copywriting manager, $122,236 for a graphic design director, or $107,183 for a senior advertising account manager, all of which can be a good salary for a single person.

10. English/Creative Writing

An English or creative writing major may be what many people consider easy. Depending on the path you take, it could lead to a high-paying job. People who choose this field may pursue a job as a proofreader, copy editor, technical writer, book editor, author, or an editor at a publishing company or magazine. These may all be lower stress jobs that are good for introverts.

•   Average starting salary: $44,750 for an entry-level proofreader.

•   Average mid-career salary: $98,101 for a senior editor.

11. Sports Management

Anyone who loves sports (whether participating, watching, or both) may be attracted to a major in sports management. Sports management encompasses a wide array of jobs, including becoming a sports agent, an athletic director, or a sports facility manager.

•   Average starting salary: $51,539 for a sports coordinator position.

•   Average mid-career salary: $69,061 for a sports manager job.

12. Criminal Justice

If you’re always watching procedural dramas on TV, you might be interested in majoring in criminal justice. While this field of study may be considered easy as compared with, say, a mathematics major, that doesn’t mean a career in criminal justice isn’t going to be challenging and rewarding.

Jobs for criminal justice majors can include working in the areas of law enforcement, forensics, investigations, and crime prevention.

•   Average starting salary: $50,733 for a fraud investigation officer or $56,376 for a police officer (plus, you might eventually qualify for federal student loan forgiveness programs) .

•   Average mid-career salary: $123,694 for a fraud manager or $90,671 for a chief detective position at a business.

Factors Besides Difficulty

Now you know 12 relatively easy majors that can lead to a job with high pay. But it’s worthwhile to consider some other factors that should be considered when choosing a college major.

Job Outlook

Some fields are growing faster than others. As you think about your major, it can be a good idea to make sure the one you choose will lead to a field that is growing and will have plentiful job opportunities after college. For instance, if you have a criminal justice degree and want to work in fraud investigations, you might find that there’s considerable growth in digital fraud and focus your education to prepare you for that kind of work.

Passion/Interest

Sometimes what makes coursework in college seem easy is that you love it. Ask any astrophysics major. They may think what they are studying is hard, but because they love it, the pursuit feels engaging and worthwhile.

In other words, if you are passionate about a subject, that can be a good reason to major in it, even if it has a reputation for being hard.

School Prestige

When it comes to getting a high-paying job after graduation, it can help if you pursue a program that your school is known for. For instance, some universities are renowned for having great journalism programs, and that reputation could give graduates an advantage in the job market.

The Takeaway

Getting an undergraduate degree, no matter what the major, requires hard work and dedication. However, there are some majors that fall into the “easier” category such as communications, anthropology, and history. These majors may not require as intensive a curriculum as others (say, chemical engineering), but grads can still go on to earn high salaries.

Regardless of whether your major is considered hard or easy, you may need some help paying for your education.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

Is an “easy” major looked down on?

There may be some people who think certain majors are easy, but virtually all college majors require hard work. After graduation, hiring managers are likely looking for someone who performed well in school, is enthusiastic about their studies, and wants to apply their skills to their chosen career.

Do easy majors require less study time?

How much time and effort a college major requires can depend on the school, the curriculum, and a student’s approach to their studies and their aptitude. It’s not possible to say that all easy majors require less study time.

What are the highest paying majors overall?

According to a 2024 report from the National Association of Colleges and Employers, the highest paying majors are those in the STEM (science, technology, engineering, and math) category. The three highest paying majors are engineering, computer sciences, and math and sciences.

Photo credit: iStock/Drazen Zigic

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SOIS-Q224-1940086-V1

It’s almost become a trope at this point. Your friend’s aunt bought some Apple stock way back when and now lives full-time on a yacht. Or your cousin knows somebody who knows somebody who bought some Microsoft stock for a few dollars a share in the ’80s, and now they’re a multimillionaire.

These stories are practically the stuff of urban legend. But if you’re looking to buy a first tech stock or want to add some diversity to your portfolio, you may find the reality to be slightly different from the stories. There are many kinds of tech stocks, each with its own performance trends, pros, and cons. Here are a few fundamental truths worth knowing about investing in tech stocks.

Why Investors Are Investing in Technology

Much of the recent growth in the stock market overall has been concentrated in the shares of technology companies. Technology stocks, as measured by the S&P Technology Select Sector Index, rose 129.8%, or 18.11% annually, during the past five years. In contrast, during that period, the broad S&P 500 Index grew by 60.2%, or 9.9% annually.

The top five most valuable companies in the S&P 500 are technology-related companies. These firms — Apple, Microsoft, Alphabet (the parent company of Google), Amazon, and Tesla — have an average market capitalization, or overall stock value, near $1 trillion or more. And during the past five years, the stocks of these companies have experienced substantial growth.

Investors flock to technology companies, especially the previously mentioned tech giants, because they’re often considered solid businesses.

The products of technology companies — especially software companies — are relatively cheap to reproduce but can be quite expensive to buy. Apple, for example, prices iPhones ahead of their competitors, sells a lot of them, and then operates an ecosystem of apps and services that generate steady revenue. Amazon’s success is attributed to the effectiveness of its operations and low prices. For Alphabet, the sheer scope of its networks and the popularity of its services allows them to sell more ads than its competitors.

Aside from the giants that have established business models, many investors pour money into tech companies due to the promise of future earnings. Even when tech companies are not profitable or see regular cash flows, investors will still support the stocks because of the potential for future earnings. Companies like Amazon and Tesla took years before they turned steady profits.

Popular Technology Stocks to Own

The technology industry is incredibly diverse. Beyond the five companies mentioned above, these are some of investors’ most widely held technology stocks.

How Can You Invest in Tech Stocks?

At the most basic level, you can invest in tech stock by buying the individual stocks of an appealing company.

Another way to invest in tech is by trading technology-focused exchange-traded funds (ETFs) or mutual funds. Tech ETFs and mutual funds allow investors to diversify their investments in a single security, which may be less risky than buying a specific company’s stock.

If you are interested in a particular tech sector — like artificial intelligence or green tech — you can invest in more targeted funds rather than broad-based technology-focused ETFs.

Different Sectors for Technological Investment

The technology industry is vast, filled with companies specializing in different areas of the market. For an investor, this means it’s possible to diversify, investing in tech stocks across various sectors.

Artificial Intelligence

Artificial intelligence (AI), which refers to ways that computers can process data and automate decision-making that humans would otherwise do, is a burgeoning tech sector. Many companies are operating in this sector, using new technologies to support fields like finance and healthcare. Artificial Intelligence, along with the related field of Machine Learning (ML), has long been one of the most exciting technology areas.

Transportation

Another bustling sector of the industry is transportation. Tech underlies all transportation, and some of the most exciting companies are building electric cars, creating the batteries and software that support the navigation and operational systems in automobiles, or using software to connect drivers and passengers.

💡 Recommended: Investing in Transportation Stocks for Beginners

Streaming

Streaming companies have completely revolutionized the entertainment industry. These companies offer direct-to-consumer content, including shows and movies, that is bundled in a monthly subscription. There are standalone streaming companies, companies that include streaming as an ever-growing part of their business, and companies that build digital and physical infrastructure to support streaming services.

Information Technology

Information technology (IT) is one of the broadest and most valuable sectors of the technology industry. It typically refers to how businesses store, transmit, and use information and data within and between networks of computers.

Semiconductor Technology

Semiconductors are arguably the foundation of all technology. Semiconductor companies make components found in phones, computers, and other electronic devices. The manufacturing process for semiconductors is incredibly precise and expensive, making the industry ruthlessly competitive.

Web 3.0

In recent years, cryptocurrency, blockchain technology, and Web 3.0 have been the focus of many investors. That’s because computer engineers and companies are now developing new technologies that will allow users to interact with the web in a more interactive, personal, and secure way. These new technologies, like blockchain, crypto, and the metaverse, may usher in new opportunities for investors.

💡 Recommended: Web 3.0 Guide for Beginners

Evaluating a Tech Stock Before Investing

When investing, you must carefully evaluate the stocks you’re interested in.

Technology companies, in particular, tend to have high price-to-earnings (P/E) ratios, meaning that the company’s profits may seem low compared to the price of their shares. This is often because investors are expecting rapid future growth.

Other key metrics include price-to-sales, which compares the stock price to the company’s revenue. This is something to consider in the case of a fast-growing company that doesn’t yet have substantial profits.

Another critical factor is the company’s overall revenue growth — the pace at which revenue increases year-over-year or even quarter-over-quarter.

A more detailed metric that can be useful for tech companies is “gross margins,” which is the difference between a company’s revenue or sales and the cost of generating those sales, divided by total revenue. The resulting percentage indicates whether the company can make money on the actual product it sells and how much. If the company’s other costs can go down as a percentage of total revenue, profits can grow more quickly.

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Pros of Adding Tech Stocks to a Portfolio

There are many benefits to investing in tech stocks, most notably attractive returns. With artificial intelligence, blockchain, and Web 3.0 technologies on the horizon, there are increasing opportunities to invest in this sector. These are some possible benefits of adding tech stocks to a portfolio.

•   There are many blue chip tech companies. Blue chip stocks typically refer to stocks from long-established companies with good returns. Today’s blue chips include huge tech companies like Apple, Alphabet, and Amazon.

•   Some tech stocks pay dividends. There can be benefits to dividend-paying stocks, including consistent earnings, which might indicate that the company is positioned to deliver strong performance.

•   Investors can buy shares in things they use. Most people use some tech in their daily routines. You might have a smartphone, or a laptop, hop on a social network, or order groceries or clothing online. With a tech stock, investors can buy a little piece of the companies they know and like.

•   It’s easy to diversify in tech. Tech stocks aren’t a monolith. Investors can add diversity to their portfolio by purchasing different aspects of the tech sector, for example, buying stock in social media companies, smartphone glass manufacturers, hardware makers, software companies, and even green tech companies.

A great thing about the tech sector investing space is that there’s so much of it out there, and investors should be able to find something that works for their goals, ambition, and knowledge base.

💡 Recommended: How to Invest in Web 3.0 for Beginners

Cons of Investing in Technology

All stocks come with their own risks and potential downsides. Tech stocks are no different. As with any stock purchase, it’s helpful to do a good amount of research before buying a stock. Take these considerations into account before deciding to pull the trigger on a tech stock.

•   The potential for tech backlash. Some experts think increased regulation and government scrutiny could lead to a backlash against tech stocks that could affect their prospects. They cite 2018’s passage of the European Union’s General Data Protection Regulation (GDPR) and Facebook’s hearings before Congress as evidence that even more regulation might be coming in the future. But like many other sectors of the stock market, various tech stocks react differently in the face of volatility.

•   Buying what you know can be complicated. You might have a solid grasp on some social media giants, for example, but some of the nuances of emerging semiconductor firms might be a little harder to wrap your head around. You may have to ask yourself if you want to invest in a company that you might not fully understand.

•   Stocks may be priced too high. Some tech companies, like Amazon and Google, often have shares that venture into the four figures, so for a first-time tech stock investor, those companies may feel out of reach. However, many tech companies occasionally engage in a stock split to decrease their share prices.

Do You See the Most Returns When Investing in Tech Stocks?

Most returns when investing in tech stock can vary depending on the specific company and the current market conditions. Nonetheless, many investors believe that tech stocks generally have a higher potential for growth than other types of stocks, making them a good choice for those looking to generate returns. During the past five years, technology stocks rose a total of 129.8%, while the broad S&P 500 Index grew by 60.2%.

But just because tech stocks have outperformed other industries, it doesn’t mean that it will always be that way. During 2022, for example, tech stocks have declined 22.7% through Aug., while the S&P 500 fell 16.8% year-to-date.

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How Frequently Should You Invest in Tech Stocks?

The frequency you invest in tech stocks will depend on your individual investment goals and risk tolerance. Some investors may choose to trade tech stocks monthly or quarterly to take advantage of any short-term price fluctuations. Others may invest in tech stocks on a more long-term basis, holding onto their shares for several years to benefit from any potential long-term growth.

What Percentage of Your Portfolio Should Be Tech Stocks?

The percentage of a portfolio allocated to tech stocks differs for every investor. Some experts recommend that investors allocate no more than 20-30% of their investment portfolio to tech stocks, but this percentage may be higher or lower depending on the investor’s risk tolerance, investment goals, and other factors.

Mistakes to Avoid When Investing in Tech Stocks

Many investors are drawn to tech stocks because of the potential for a significant return. But the allure of large gains may cause investors to take on too much risk or lose sight of their overall investment goals.

For example, you don’t want to invest in a tech stock just because it’s popular. It’s easy to fear you are missing out when you see a particular stock’s price skyrocket. You may hear about a tech stock lot in the financial media, and you know many people who say they own it, but that doesn’t mean it’s a good investment.

Additionally, you should avoid investing in a stock just because the company is a household name. While sometimes the stocks of well-known companies do well, there are other cases of these companies not being well run and thus not being a good investment.

The Takeaway

The tech sector is vast and getting bigger by the moment as blockchain, artificial intelligence, and other technologies push boundaries. New founders are working on startups in garages and basements, potentially developing the next new thing that could change the world. Investors looking to invest in tech stocks can find a stock or ETF out there that could meet their needs. For instance, SoFi ETFs can remove some of the headache from picking individual stocks by allowing you to invest in a bundle of companies all at once.

SoFi makes it easy to invest in tech stocks and more with an online brokerage account. With the SoFi app, you can trade stocks, ETFs, and fractional shares with no commissions for as little as $5. You’ll also get real time investing news, curated content, and other relevant data for the stocks that matter most to you. For a limited time, funding an account gives you the opportunity to win up to $1,000 in the stock of your choice. All you have to do is open and fund a SoFi Invest account.

FAQ

Why is investing in tech stocks so popular?

Tech stocks are popular because they are some of the largest and best performing assets in the financial markets. As a whole, the technology sector is one of the fastest growing sectors in the economy. This means that there are a lot of new and innovative companies that are constantly coming out with new products and services. This provides investors with a lot of growth potential.

How can you start investing in tech stocks today?

You can start investing in tech stocks by trading individual stocks, invest in a tech-focused mutual fund or ETF, or invest in a more general stock market index fund that includes a mix of tech and non-tech companies.

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