Fifth-generation wireless, or 5G, is the latest cellular network technology to be introduced
to the world.
It's engineered to greatly increase the speed and responsiveness of wireless networks.
So how fast is 5G?
Just imagine downloading an entire HD movie to your phone in seconds without Wi-Fi.
But 5G could impact a lot more than your viewing habits.
Like most new technology, it has the potential to transform businesses and impact financial
markets.
While it'll be years before 5G coverage is established nationwide, investors may want
to start thinking about its future implications now.
While past performance does not guarantee future results, every new generation of wireless
technology has led to new products, companies, and investment opportunities.
Remember what happened when the industry switched from 2G to 3G in the 2000s?
Before 3G, most cell phones were primarily used for calls, texts, and email.
But 3G's increased bandwidth changed the capabilities of mobile phones for years to
come.
An early example of this was Apple's iPhone 3G.
Released in 2008, the 3G introduced new mobile features like faster web browsing, turn-by-turn
GPS, location-based services, and video on demand.
It set the standard for all future smartphones and created an ecosystem of parts suppliers,
retailers, and businesses reliant on the mobile experience.
Fast forward to 2019.
5G promises significant improvements, which has the potential to enable instantaneous
communication between all connected devices.
Just imagine yourself in a driverless car where every vehicle is connected to each other,
the road, and traffic management systems.
A sensor could recognize a hazard on the road and tell a cloud-based server about the danger
in the blink of an eye.
This is just one of many use-cases that could lead to exciting innovation.
And, although 5G is still in its infancy, there are a few ways to think about investing
in a new technology.
First, you can look at companies that create 5G compatible devices.
For example, the new technology could lead people to upgrade their phones, which could
benefit smartphone manufacturers, chipmakers, and parts suppliers.
But it goes beyond phones.
5G could also support The Internet of Things, or I-o-T, which is the concept of an interconnected
network of wearables, machines, buildings, automobiles, and other devices.
Investors can look at specific companies within this ecosystem, or diversify across a larger
group by finding ETFs focused on I-o-T.
Second, investors can focus on the companies and areas of the economy that will build the
infrastructure for 5G.
For example, delivery of 5G service will require wireless carriers to invest in more cell towers,
nearly doubling the current amount of towers and cell sites.
This could potentially drive revenue growth for cell tower REITs.
REIT stands for Real Estate Investment Trust, which is a type of company that owns or finances
income-producing real estate.
If these cell phone tower sites generate more revenue than expected, or greatly expand,
it could potentially lead to future gains for certain REITs.
However, investments in REITs and other real estate securities are subject to the same
risks as direct investments in real estate, including loss of principal.
And lastly, investors should keep their eye on businesses that could be disrupted by 5G.
The most obvious is internet service providers.
5G's speed will rival Wi-Fi and may be powerful enough to provide internet for your entire
household.
Just as people have cut their cable cord, internet service might be next.
However, there are always risks for investors.
Even though 5G will be a game-changing technology, companies involved in 5G aren't guaranteed
to be successful.
Warren Buffett used the auto industry as an example of the low probability of success.
Buffett noted there have been thousands of U.S. car makers, but only three survived from
the early days: Ford, General Motors, and Chrysler.
He went on to say, "When you saw what was going to happen with the auto in 1905 you
should have gone short horses..it's easy to figure out the losers.
The winner was the auto overall.
But 2,000 companies just about failed."
Market timing is another risk for investors.
For example, had you bought Verizon stock when 3G was announced in 1998, there's a
good chance you took heavy losses when the dot-com bubble burst.
Not to mention, 3G took nearly a decade to become widely adopted.
In short, it's hard to tell which, if any, specific companies will ultimately profit
from the rise of 5G.
But 5G is coming.
Standards have been agreed upon by government agencies, and many are actively pushing for
implementation sooner rather than later.
Telecom carriers are laying the necessary infrastructure.
Device makers are designing 5G capable devices.
And somewhere, a wide-eyed entrepreneur is sitting in a garage inventing the next big
thing.
Investors hoping to capitalize on a new technology like 5G should learn from the lessons of the
past, and start their investing due diligence today.