The act of investing is, in many ways, a bet on the future.
And sometimes, the future arrives quickly: Tesla will have “robotaxis” on the streets of Austin, Texas, by the end of June, CEO Elon Musk told CNBC on Tuesday. The program will start with about 10 self-driving vehicles and rapidly expand to thousands if the launch goes off without incident, Musk said.
That sort of announcement may give you the itch to open your brokerage app, if you think autonomous vehicles are the way of the future. But wise investors, even when presented with exciting opportunities, are still deliberate in their approach, says Douglas Boneparth, a certified financial planner and president of New York-based wealth management firm Bone Fide Wealth.
“Whether it’s self-driving vehicles or any future technology — AI being the largest of the categories here — when we’re thinking about opportunities to invest, you don’t treat it any different than any other investment opportunity that you have,” says Boneparth, a member of CNBC’s Advisor Council. “You’re going to work with your client to see what their appetite for risk is and where an investment like that fits in their overall financial plan or their overall investment plan.”
Here’s how he and other financial pros think about investing in technology themes of the future.
Consider a thematic ETF
If you’re looking to up your portfolio’s exposure to a certain technology or investing idea, consider a thematic exchange-traded fund. These ETFs tend to hold a basket of stocks that the fund company believes will benefit from the rise of a particular technology or industry.
Prospective investors in generative artificial intelligence, autonomous vehicles or humanoid robots, can choose between several dedicated, specialized ETFs, each with their own mix of stocks based on different portfolio-building methodologies.
Essentially, instead of trying to pick which companies in a nascent industry will eventually succeed, you could just buy the whole thing, owning the winners and eventual losers.
“The hook for some of these ETFs is, a lot of people say, ‘If only I had invested in the internet in its early days, I would have made so much money,'” says Roxanna Islam, head of sector and industry research at TMX VettaFi. “You’re investing in its early days, and you’re going to see it grow and play out in the future.”
Examine what each fund holds before you buy. Many of them are weighted by company size, so they may own a number of large-company stocks that are already in your portfolio — not exactly providing new exposure to a particular theme. Lots of autonomous vehicle ETFs, for instance, include Tesla and industry “enablers” like Nividia and Microsoft, says Islam.
Some investors may be fine with this, while others may want to seek out an ETF that sticks to “pure plays” on the theme, she adds. “You have to look under the hood and see if what the fund holds is right for you.”
Limit your risk with an ‘opportunity portfolio’
Whether you’re interested in buying thematic ETFs or picking individual stocks, financial experts recommend setting up some guardrails before you do so.
First, some classic advice: Make sure the vast majority of your investments are in a broadly diversified core portfolio of low-cost mutual funds and ETFs. Then, once you have that set up, financial pros say you can branch out into investments that you find more exciting — carefully.
“If we’re talking about opportunity portfolios, or if you want to call it ‘core and explore’ – whatever terminology — 5% to 10% of your overall investable net worth being put towards things that are more adventurous or opportunistic is usually where we start the conversation,” says Boneparth.
The idea here is to use a small portion of your portfolio to have fun. If it does well, great — and if it doesn’t, you won’t lose a significant chunk of your net worth overnight. Islam recommends devoting no more than 5% of your portfolio to thematic ETFs, for example.
And remember: Investing solely based on headlines is rarely a great idea, no matter how promising the news may seem.
“Just because it’s extremely popular and extremely exciting doesn’t mean you treat it any differently from the amount of due diligence and research you would do for that specific company or sector,” Boneparth says.
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