Key insights
- The Vanguard Information Technology ETF (VGT) has significantly outperformed the S&P 500 over the past decade, driven by strong performance in semiconductors and AI-related stocks like Nvidia, Apple, and Microsoft. Its broad diversification within the tech sector offers a hedge against subsector downturns. The article suggests VGT could continue to be a strong performer, potentially leading to substantial long-term gains for investors.
The right investment can transform your finances, turning small regular contributions into hundreds of thousands of dollars or more over time.
Exchange-traded funds (ETFs) are low-maintenance investments that perform best when given decades of uninterrupted time to grow. Some ETFs track the broader market, while others aim to deliver above-average returns over time.
While all investors will have unique goals and preferences, this Vanguard ETF has a strong track record of beating the S&P 500 (^GSPC +0.22%). Over time, it could supercharge your earnings.
The Vanguard Information Technology ETF (VGT +1.77%) covers the broader technology sector, with 316 holdings. Perhaps the biggest advantage of this fund is that it offers both diversification across tech and exposure to high-growth stocks and subsectors.
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Close to 40% of the fund is devoted to semiconductor stocks, which have experienced explosive growth in recent years as part of the push for artificial intelligence (AI) advancement. Its top holdings include superstar performers like Nvidia, Apple, Microsoft, and Micron Technology, and if AI-related stocks continue to surge, this ETF could thrive.
At the same time, because it includes more than 300 stocks across the tech space, this fund also offers greater diversification than many other tech ETFs. If one subsector stumbles, there are plenty of other stocks that can help prop up the fund and protect your investment.
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Over the last 10 years, the Vanguard Information Technology ETF has earned total returns of more than 836%, as of this writing. The S&P 500, on the other hand, has delivered total returns of around 324% over that period.
In other words, if a decade ago you'd invested $5,000 in either the Vanguard Information Technology ETF or an S&P 500 ETF, you'd have around $47,000 or $21,000, respectively, by today.
Past performance doesn't predict future returns, so there's no way to know exactly how this ETF will fare over time. That said, it can sometimes be helpful to estimate returns just to get an idea of the earning potential of different investments.
Over the last decade, the Vanguard Information Technology ETF has earned an average annual return of just over 24%. Since its inception in 2004, however, its average annual return is just 14%. For context, the S&P 500 itself has historically earned an average annual return of around 10%.
Let's say this ETF could continue earning average annual returns of 24% or 14% going forward, and that you're investing $200 per month. Over time, here's approximately how that could accumulate:
Again, there are no guarantees that this ETF will continue earning returns in line with its historic averages. However, even if it only earns slightly higher-than-average returns, you could still accumulate hundreds of thousands of dollars over time. The more you can afford to invest each month or the longer you can let your money grow, the more you could potentially earn.
Just be sure you're prepared for volatility and that the rest of your investments are well-diversified with stocks from other industries. While tech can be lucrative, a balanced portfolio is key to managing risk and returns.