The tech sector is a relatively new corner of the market, and did not come into its own until the 1990s. Technology stocks had peaked in the late 1990s, when many of them reaped enormous gains from 1996-1999, and then flamed out spectacularly in the following years. Some stocks posted astronomical losses and subsequently faded away. On the other hand, some stocks fought back and managed to thrive today.

Technology stocks also tend to be volatile, although their price movements have historically been relatively tangential to the overall markets. In terms of investment objectives, technology serve only one purpose: growth. When the broader market rises, the tech tends to appreciate sharply; the same applies in reverse in bear markets.

Investors who had exposure into the tech sector via the Technology SPDR ETF (NYSE:XLK) would have been up about 10% this year. Picking individual technology stocks could have yielded substantially higher returns. For example, Apple Inc. (Nasdaq:AAPL) had a great year; its stock price jumped over 53% over the year. However, this only represents the tip of the iceberg as there have been many other tech stocks that have yielded even greater returns.

Company Market Cap % Change
IDT Corporation (NYSE:IDT) 626M +470%
VirnetX Holding Corp (NYSE:VHC) 658M +357%
Travelzoo Inc. (Nasdaq:TZOO) 685M +239%
Baidu, Inc. (Nasdaq:BIDU) 34.9B +144%
VMware, Inc. (NYSE:VMW) 36.8B +110%

Technology investors have endured a wild ride over the past several years, and this pattern will likely continue over time. The volatility and capital gains distributions inherent in these funds should be carefully weighed against their performance history as well as the objective and risk tolerance of the investor. (To learn more, see What Is Your Risk Tolerance?)

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