After many months of hype and fanfare, social networking darling Facebook
If you're among the many investors who missed out on the IPO and are thinking about buying shares of Facebook, you might want to let some of the dust settle first. It's almost never a good idea to rush into hot new trends, including one of the biggest, most hyped IPOs in U.S. history. But if you want to get in on the Facebook fad, there are other ways to play the game that aren't quite as risky.
Highly focused investing
Of course, Wall Street is not one to let the latest fad go unmonetized. So it shouldn't be surprising that investors who want to profit from the growing trend of social media can now do just that, in ETF format.
Last fall, the Global X Social Media Index ETF
The bigger picture
But while I do agree that there is tremendous profit and opportunity yet to be tapped in the social media realm, I've never been a big advocate of funds that invest in narrow slices of the market. Such funds are typically more expensive and are riskier than broader-market offerings. If you really want to home in on the broader trends that are driving the rise of social media, you need to get your foot in the door of the broader information technology sector. That's where inexpensive, tech-focused exchange-traded funds come into play. These ETFs give you the option to boost your tech allocation without taking on a lot of company-specific risk.
Two of the cheapest options in this sector are the Vanguard Information Technology ETF
Sector funds like these are less risky than owning individual shares of a few specific tech companies or more narrowly focused funds like the Global X fund mentioned above, but they are still rather volatile compared to the broader market. For instance, both funds lost more than 40% of their value in 2008's bear market. Use ETFs like these to bump up your tech exposure on the margins, not to take huge bets with large portions of your portfolio.
Even investors who don't want sector-focused funds at all can still get in on the tech-fueled power of social media, Internet, and computer hardware and software firms. If you're looking for an even broader approach to tech investing, consider growth-oriented ETFs. These funds give you more diversification in multiple market segments while still maintaining a large allocation to the tech sector.
For example, the Vanguard Growth ETF
Ultimately, time will tell whether Facebook turns out to be the steal of the century or a total flop. But you don't necessarily need to own that particular stock to benefit from the growth the tech sector is likely to see in the coming years. In this case, as in so many others, it may be better to avoid the fad and stick with the tried and true.
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Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. At the time of publication, she did not own any of the funds or companies mentioned herein. The Motley Fool owns shares of Microsoft, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Microsoft, and Google, as well as creating bull call spread positions on Microsoft and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.