Investing in exchange traded funds (ETFs) is one of the most effective ways to generate wealth in the stock market with minimal effort.
ETFs can provide instant diversification as many contain hundreds of stocks in a single investment, saving you countless hours of research compared to buying individual stocks. Greater diversification can also limit your risk, adding more variety to your portfolio to protect against market volatility.
Sector ETFs, in particular, can help you boost your income. An ETF that tracks a particular market sector can make it easier to gain exposure to that sector without all the research required to invest in individual stocks.
If you want to invest in the technology sector, a technology ETF could help you turn $200 a month into $704,000 or more. Here’s how.
Building a Strong Portfolio
THE Vanguard ETF for Information Technology (NYSEMKT: VGT) is a leading technology fund with a track record of significantly outperforming the market.
This fund includes 321 stocks from various areas of the technology industry. The three biggest titles are Microsoft, AppleAnd Nvidia, respectively. Collectively, these three stocks represent nearly 47% of the entire fund.
While you could simply invest in Microsoft, Apple, and Nvidia individually, investing in an ETF creates greater diversification. When Nvidia eventually exits (because it can’t keep up this phenomenal run indefinitely), having hundreds of other stocks in your portfolio can help cushion the blow.
This ETF also has a relatively low expense ratio of 0.10%, meaning you’ll pay $10 per year in fees for every $10,000 in your account. Since many similar funds charge fees of around 1% or more, a lower expense ratio could potentially save you thousands of dollars over time.
Boost your savings
One of the main benefits of investing in a sector-specific ETF is the potential for above-average returns – and this fund has significantly outperformed the market.
Over the past 10 years, the Vanguard Information Technology ETF has generated an average rate of return of 20.35% per year. For comparison, the Vanguard S&P 500 Exchange Traded Fund (which tracks the S&P 500 index) has averaged just 12.66% per year over that period.
However, at least part of these incredible returns may be due to Nvidia’s amazing performance this year, given that the title constitutes an important part of the composition of this fund. However, this ETF has still generated an average return of 13.25% per year since its inception in 2004, which is higher than the historical market average of around 10% per year.
It is unclear how this fund will perform in the future, as past performance does not guarantee future returns. But if you invest $200 a month, here’s approximately how much you could accumulate over time, depending on whether you get an average annual return of 10%, 13%, or 20%:
Number of years | Total portfolio value: 10% on average. Annual return | Total portfolio value: 13% Average annual return | Total portfolio value: 20% on average. Annual return |
|---|---|---|---|
ten | $38,000 | $44,000 | $62,000 |
20 | $137,000 | $194,000 | $448,000 |
30 | $395,000 | $704,000 | $2,837,000 |
Data source: Author’s calculations via investor.gov.
If you get an average annual return of 13%, investing regularly for about 30 years will net you about $704,000. But if this fund manages to generate returns closer to its more recent 20% annual average, you could potentially earn a lot more over time.
Consider the risk factor before purchasing
There are never any guarantees in the stock market, and that’s especially true when it comes to tech investments. The sector tends to do well when the market is booming, but it also tends to get hit hard during downturns.
Before you invest, make sure it’s a risk you’re willing to take. Your investment may generate above-average returns in the future, but it may also generate average or even below-average returns in some years. If the potential reward outweighs the risk for you, this could be a wise addition to your portfolio.
Also keep in mind that when investing in a fund like this, the rest of your portfolio should be well diversified. Since this ETF only contains technology stocks, you’ll want a variety of stocks from other sectors to properly limit your risk.
The Vanguard Information Technology ETF is a powerful fund that has consistently generated above-average returns and has the potential to boost your gains. However, it is not without risks. By considering your goals and risk tolerance, you can decide if it’s right for you.
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Katie Brockman has positions in the Vanguard S&P 500 ETF and the Vanguard World Fund-Vanguard Information Technology ETF. The Motley Fool has positions and recommends Apple, Microsoft, Nvidia, and the Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 buy Microsoft and short January 2026 $405 buy Microsoft. The Motley Fool has a position in the Vanguard S&P 500 ETF and the Vanguard World Fund-Vanguard Information Technology ETF. disclosure policy.
1 Gorgeous Tech ETF That Could Turn $200 a Month into $704,000 or More was originally published by The Motley Fool
