Building wealth is an alien concept for many people. Investing in the stock market can be emotional, daunting, and exhausting. For these reasons, people sometimes struggle to build savings due to the intimidation the capital markets present.
Luckily, choosing individual stocks that perform well over a long-term horizon is not required to accumulate savings. In fact, even Warren Buffett owns passive funds that mimic the broader market.
One of the biggest growth industries fueling the technology sector is cloud computing. While there are many cloud stocks to choose from, investors may be better suited owning an index fund.
The Fidelity Cloud Computing ETF (FCLD 1.19%) is a newer exchange-traded fund (ETF) that hit the markets in 2021. Although the past couple of years have been quite volatile for software-as-a-service (SaaS) stocks, this ETF has some interesting features. Let's dig into the fund and assess how a monthly contribution of just a few hundred dollars could result in a generational wealth opportunity.
What makes Fidelity Cloud Computing ETF unique?
The cloud market is dominated by big tech companies, such as Microsoft, Amazon, Alphabet, and Oracle. One of the more interesting aspects of the Fidelity Cloud Computing ETF is its diversification. While the fund owns positions in tech behemoths like Microsoft and Salesforce.com, investors also gain exposure to a number of budding players in the cloud landscape, including ServiceNow, Datadog, Atlassian, and UiPath.
The intersection of more mature technology businesses with newer growth stocks is a unique combination. That said, growth stocks tend to trade with more pronounced volatility compared to blue-chip companies. This dynamic is clearly illustrated in the chart below. Note the precipitous declines throughout 2022 and subsequent rebound last year as concerns over the economy started to turn more optimistic.
How can you build wealth with monthly contributions?
A good formula for building wealth is to invest consistently and hold on to your positions over a long-term horizon. The chart below illustrates that even just $300 each month can turn into $869,000 over a multidecade period.
| Number of Years | Total Savings |
|---|---|
| 10 years | $63,000 |
| 15 years | $134,000 |
| 20 years | $259,000 |
| 25 years | $480,000 |
| 30 years | $869,000 |
The table above assumes the index fund returns 12% per year on average. While this is higher than the long-run returns of the S&P 500, I think the cloud computing industry has enough tailwinds to provide this level of growth.
Image source: Getty Images.
Should you invest in the Fidelity Cloud Computing ETF?
According to a market study by Mordor Intelligence, the cloud computing industry is expected to grow at a compound annual growth rate (CAGR) of 16.4% and eclipse a global size of $1.4 trillion by the end of the decade.
Moreover, during Amazon's Q3 earnings call back in October, Chief Executive Officer Andy Jassy said, "If you think about 90% plus of the global IT spend being on-premises, where I think that equation is going to flip in 10 years. I think cloud is early."
As generative AI demand continues to increase its position within IT budgets, it might be sooner rather than later that IT spend will rapidly shift from primarily on-premises applications to more cloud computing instances. For this reason, many smaller growth stocks held in the Fidelity Cloud Computing ETF could experience compounding exponential growth over the long term.
If saving more money was one of your New Year's resolutions, tucking some cash away each month and investing in high-growth markets with long-term secular tailwinds could be a good place to start. The unique structure of mature enterprises and smaller, albeit promising, players in the Fidelity Cloud Computing ETF could make it a compelling opportunity to help build substantial savings over the long term.