Are software companies a good investment?

The importance of software in knitting together the modern digital world shouldn’t be underestimated.

As Investopedia puts it: “Without software, nothing much happens in the modern world. Computers are everywhere and represent critical components of everything from pacemakers to cars, but none of those computers do anything without software. As such, it is not surprising that software is a huge industry as well – on the order of $300 billion or more.”

So, with huge importance and lots of money involved, does software make for a good investment?

A volatile market provides opportunities for experts

While there is undoubtedly a lot of money in software, there isn’t stability in this market.

Tech and software companies are prone to the usual economic factors that businesses need to be wary of – with recessions and downturns typically knocking the amount of dollars CIO have available to update or upgrade their software systems.

On top of that, all software firms face a constant battle to remain relevant. Just think about the way in which the software that we use on a daily basis at work or at home has been tweaked or updated in the last few months or years. It’s hard to keep up the pace. One false product launch, a poor upgrade or the arrival of a new ‘disruptor’ could knock a software provider off its perch on next to no time.

This presents positives and negatives. While it might mean that holding physical shares in such companies is risky, there is an opportunity when it comes to CFD – which allows people to trade in changes in the value of shares. This is ideal for someone with passion and expertise in this sector who is confident at being able to spot the changes in value.

On a similar note, people with a flair for knowing ‘what’s next’ can actually make money in the short term, with software firms able to grow quicker than other investments that take longer to reach their potential. Essentially wherever there is risk in the market there is a reward to be had. As long as you remember this and bear it in mind, you can turn this into a good investment.

Invest in the investors

Still not convinced? Why not, as Motley Fool recommends, invest in software and tech indirectly?

Bailador Technology Investments manages a healthy portfolio of unlisted tech companies and has a decent track record in delivering success in this field.

It pinpoints about ten companies in the ‘early expansion stage’ and, in 2015, revenue growth across these firms was about 42 per cent.

The biggest investment it holds is in SiteMinder, which was recently named as one of Australia’s top 50 most innovative companies for the service it provides in helping hotels to manage their bookings.

A wealth of opportunities

So, is software actually a good investment? Well, for market novices, the big players in this industry provide some fairly dependable names to search out but anyone parting with their cash needs to be aware of the potential volatility in this sector and the good and bad knock-on effect that this can deliver. Software might be here to stay but the software that we use today isn’t.

Software companies offer opportunities for trading, CFD trading and the smart use of investment funds. Savvy traders can benefit from one or more of the above as part of a healthy, diverse portfolio.