If you are excited about the new generation of smart home technologies, you just may want to put some money into the market. High-tech has always been an investor favorite, and with a little research you can narrow the field to home technology investments specifically. The most straightforward way to invest in these companies is to buy their stock – this only applies to public companies of course. The trick is to diversify your holdings, because smart technologies are not necessarily the same as smart investments. You should try to have at least five to ten tech investments in at least three different countries or markets. Here are a few other ways to invest in smart living technology:
- Mutual Funds: High tech mutual fund managers select their favorite companies for inclusion in their funds. You are therefore depending on the judgment of the fund manager. An open-ended mutual fund will create or destroy fund shares as people invest or withdraw, respectively. A closed-end mutual fund is like a unit trust – it sells as a security in the secondary market, and you buy and sell from/to other investors, not the mutual fund company (with one exception: initial public offerings are sponsored by the fund company).
- Electronically Traded Funds: ETF’s are similar to mutual funds, but trade on a stock exchange. They represent baskets of stocks.
- Hedge Funds: Many hedge fund companies have multiple trading desks that may be involved in high tech investments. A long/short desk will buy the strongest stock in a sector and short the weakest, hoping to profit on a growing spread between the two. A risk arbitrage desk will buy either the acquirer or target of a takeover after the takeover is announced, depending on whether the desk thinks the deal will fail or succeed, respectively. A convertible arb desk works with firms that issue warrants and/or convertible bonds in addition to stock, and sets up an arbitrage to benefit from any mispricings among the different securities.
- Options and Futures: Many companies are traded via options and futures. Options give you the right to buy or sell a security at a given price by a given date. Futures are similar, but you have an obligation to buy or sell rather than a right, and the exercise date is fixed.
- Private Placements: Some high tech companies have not gone public yet. You can still invest by making a private placement with the company, which then issues you restricted shares that cannot be traded in the public market for two years or until the shares are registered with the Securities and Exchange Commission, whichever comes first.