Is it time to get out of technology markets or time to get in? This question is repeatedly pondered by investors who fear potential loss due to a technology sector melt-down or, conversely, by those who fear potential loss of return should they fail to participate in the current boom.

Those investors who do not carry "tech" funds in their investment portfolio may consider themselves deficient in this sector. In reality, many well-diversified funds hold upwards of 30% and 40% of their portfolios in the technology sector. Accordingly, risk-averse investors may be unaware of the volatility in their investment holdings. On the other hand, individuals wanting to invest in technology may fail to consider their overall exposure through their existing portfolio.

Fund valuations are growing at an unprecedented rate while many companies held in the fund portfolios continue to show losses. Price to earnings ratios may be beyond sustainable levels. When speculation runs as high as it has been (Yahoo trading at over 650 times earnings), we must be prepared for a reality check. Conversely, there is a convincing argument that tech valuations are not really out of line, considering the rate of advancements and the potential applications for these technologies.

In determining your appropriate tech sector weighting, consider the fundamentals of asset allocation relative to your financial planning objectives.

First, determine your personal tolerance for risk. Can you sleep nights when your investments nosedive 15% or 20%? If not, build your portfolio with more conventional, less risky investments (even then, you may have to endure volatility over the short term).

Second, be aware of the exposure within your existing investment portfolio. If you are looking for a 20% tech component and you already have a moderately aggressive portfolio, chances are you are not far off the mark right now!

You may be better off to invest in funds that have a tech component rather than straight tech funds due to the more diversified positioning and professional management. If you wish to be more aggressive, invest in individual tech stocks but be aware of the additional risk. Dr. Mark Mobius, manager of the Templeton Emerging Markets Fund, has predicted that 90% of Internet companies will lose 90% of their value.

Conversely, Brian Ashford-Russell of Henderson Investors (with a track record of 30% annually over 15 years and no losing years), says that he's never seen more opportunity in the sector than now. Perhaps they are both right. That's where the value of professional management comes in. Only time will tell.

At the end of August 1998 the Canadian market dropped over 20%. Many investors were scared out of their holdings, and their portfolio took a sound beating. The more seasoned investor stayed the course and was rewarded the next year with a 28% market gain!

While no one knows what markets will do in the short term, we have a much greater ability to predict performance over the long term. Your best bet is to know your tolerance for risk, invest accordingly, and stick to your financial plan.