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This ETF Could Help Grow Any Retirement Account

By Dave Kovaleski – Aug 21, 2021 at 7:21AM

Key Points

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The iShares U.S. Technology ETF has been among the best performers in its class .

One of the best friends an investor has is time. If you are investing for retirement, the more time you have to invest, the more time you'll have to watch your money compound and grow.

The other benefit of time is that the longer time horizon you have, the more aggressive you can be in your choice of investments. While more-aggressive growth funds are subject to short-term volatility, they typically have better long-term track records.

A great way to invest in aggressive growth funds is through an exchange-traded fund, or ETF. It represents a basket of the stocks within a sector, industry, or investment style, and is a less risky way of betting on growth companies than trying to find them on your own.

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One of the best-performing aggressive growth ETFs in recent years has been the iShares U.S. Technology ETF (IYW -0.72%). If you invest early enough, this ETF alone could help you accumulate a sizable portion of your retirement nest egg.

The iShares U.S. Technology ETF has best-in-class performance

The iShares U.S. Technology ETF provides investors with exposure to the largest tech companies in the U.S. It tracks the Dow Jones U.S. Technology Capped Index and includes about 159 holdings, a bit more than one of its primary competitors, the Invesco QQQ.

Also, it tracks a capped index, which means that while it is market-weighted, there is a cap on how big a stock can be in the portfolio, thus ensuring greater diversification. In this case, the cap is 22.5%. Its three largest holdings are Apple, Microsoft, and Alphabet. But it also includes mid-cap names like Blackbaud and DoorDash

It has been one of the best performers in its class of technology ETFs, beating all of its major competitors over the past three years through Aug. 19, according to ETF Database. It was also almost tied with the Vanguard Information Technology ETF for the best return over the last five years. In addition, it is the best performer among its major competitors with a year-to-date return of 22% as of Aug. 19.

Over the past 10 years through July 31, the iShares U.S. Technology ETF has posted an average annual return of 21.3%. And it has returned 30.4% over the past five years on an annualized basis and 44.9% over the past 12 months. It has an expense ratio of 0.43%, which is below the 0.55% category average.

How it could help grow your retirement account

To be clear, future returns of this magnitude are far from guaranteed. You shouldn't count on long-term returns averaging 15% to 20% or more per year.

Nevertheless, if you had invested $10,000 in this ETF 10 years ago, it would've grown to more than $80,000. Go back 15 years, and an initial $10,000 investment would be worth more than $95,000.

When combined with your 401(k) or individual retirement account (IRA) and Social Security, a $10,000 investment in this ETF alone (or one similar) would likely provide a comfortable nest egg. And if you have a longer time horizon than 10 or 15 years, then you'll be even better off when retirement comes.

There are a lot of good technology-focused and aggressive growth ETFs on the market, but the iShares U.S. Technology ETF is certainly among the best.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Microsoft. The Motley Fool recommends Blackbaud and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

Stocks Mentioned

iShares Dow Jones US Technology Stock Quote
iShares Dow Jones US Technology
IYW
$81.13 (-0.72%) $0.59
Invesco Qqq Trust, Series 1 Stock Quote
Invesco Qqq Trust, Series 1
QQQ
$292.55 (-0.40%) $-1.17
Vanguard Information Technology ETF Stock Quote
Vanguard Information Technology ETF
VGT
$347.21 (-0.56%) $-1.96

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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