One of the most important components of the technology sector is cybersecurity. The cybersecurity industry is rife with competition, including big tech companies such as Microsoft and Alphabet as well as smaller players, including CrowdStrike and Zscaler.
With so many different companies operating in the sector, choosing one particular stock over another can be a challenge. Luckily, investors have the option of index funds. The iShares Cybersecurity and Tech ETF (IHAK 1.06%) is one of the best cybersecurity exchange-traded funds (ETFs) on the market.
Let's explore what makes this fund a compelling investment and assess how incremental monthly contributions can compound into significant wealth over time.
What is the iShares Cybersecurity and Tech ETF?
The iShares Cybersecurity and Tech ETF is an index fund comprised of 35 different stocks. Some of the largest weightings in the fund include CrowdStrike, Zscaler, Palo Alto Networks, and SentinelOne.
Since its inception in 2019, the iShares Cybersecurity and Tech ETF has generated an average annual return of 14.5%. For reference, this is roughly 50% higher than the long-run, average annual total return of the S&P 500, including dividends.
Of course, investors need to keep in mind that the fund primarily holds growth stocks. While the nearly three dozen positions in the iShares Cybersecurity and Tech ETF help provide some diversification, the volatility of its underlying holdings can lead to outsized returns or losses in any given year.
Nevertheless, the cybersecurity industry is an evolving market that is set to grow over the long term. And with generative AI now fueling myriad technology applications, the cybersecurity landscape appears to be in a good position to experience further gains.
Image source: Getty Images.
What is the size of the cybersecurity artificial intelligence (AI) market?
Businesses of all sizes and even government agencies are susceptible to hacks. The advent of natural language processing (NLP) and machine learning are increasingly useful as it pertains to threat detection, fraud prevention, and more. The rate at which AI and cybersecurity protocols are being adopted among corporate enterprises underlines the importance of these technologies and could serve as a bellwether for the industry's growth.
The global market size for AI in cybersecurity was estimated to be worth $19 billion in 2022. However, industry research suggests this market could grow by a compound annual growth rate (CAGR) of 24% through 2032, reaching a total size of $155 billion.
Can investing each month really generate wealth?
One of the biggest misconceptions about investing is that you need to have a lot of money just to start. This is a fallacy. While the iShares Cybersecurity and Tech ETF has consistently outperformed the broader markets, it's appropriate to think that eventually its returns will normalize as many of its holdings will mature into more blue chip companies.
The table below illustrates how investing $200 per month and earning an average annual return of 10% can result in hundreds of thousands of dollars in savings.
| Number of Years | Total Savings |
|---|---|
| 10 years | $38,000 |
| 15 years | $76,000 |
| 20 years | $137,000 |
| 25 years | $236,000 |
| 30 years | $395,000 |
One of the most well-known supporters of compounding is Warren Buffett. While the acclaimed investor has picked his fair share of winning individual stocks, he also owns passive funds as well. As illustrated in the table above, a disciplined savings strategy can build generational wealth if you exercise patience and make contributions regularly.
If you are interested in investing in cybersecurity or artificial intelligence (AI) but do not know where to start, the iShares Cybersecurity and Tech ETF could be for you. Its diverse exposure to industry-leading players in cybersecurity, coupled with its robust returns, could lead to significant savings over a long-term time horizon.