The S&P 500 is often the benchmark for investors to try and beat. And it's a good one to strive for, as in the long run the broad index has generated returns of 10%. If you could average a 10% return over a period of 25 years, your investment would be worth nearly 11 times its original value. That would transform a $25,000 investment into close to $275,000.
One way you can outperform the index is by using the same types of stocks the S&P 500 contains, but focusing on a particularly fast-growing sector: technology.
Technology stocks have normally been high-performing investments in the long run
If you think of the most popular and successful stocks in the world, odds are you're thinking of tech stocks. And that's because the most valuable stocks are often focused on generating next-generation technologies. That's a key reason investors want to invest in them, and why they command high premiums. All the trillion-dollar stocks on the Nasdaq have one thing in common: they're tech stocks.
While you can invest in smaller, up-and-coming tech stocks to try and swing for the fences and maximize your returns, those investments come with much more risk and uncertainty. That makes outperforming the S&P 500 on a consistent basis no small task.
The one fund that has beaten the index in nine of the past 10 years is the Technology Select Sector SPDR Fund (XLK 1.44%).
S&P tech stocks beaten the index over the past decade
The Technology Select Sector SPDR Fund gives investors exposure to the tech stocks that are part of the S&P 500. This includes the heavy hitters, such as Microsoft, Apple, Nvidia, as well as many others.
And over the years, focusing on that section of the S&P has been very profitable. Here's how the fund has performed versus the broader S&P 500 index.
| Year | S&P 500 Returns | Technology Select Returns |
|---|---|---|
| 2023 |
24.2% |
54.7% |
| 2022 |
-19.4% |
-28.4% |
| 2021 |
26.9% |
33.7% |
| 2020 |
16.3% |
41.8% |
| 2019 |
28.9% |
47.9% |
| 2018 |
-6.2% |
-3.1% |
| 2017 |
19.4% |
32.2% |
| 2016 |
9.5% |
12.9% |
| 2015 |
-0.7% |
3.6% |
| 2014 |
11.4% |
15.7% |
Source: yCharts
The only blemish in the past 10 years for the tech part of the S&P was in 2022, when tech stocks struggled amid rising interest rates. But low valuations and the emergence and growing popularity of artificial intelligence have erased those fears and made investors bullish on tech again. Therein lies the big uncertainty with tech: In bad times, it can be a horrible place to invest, but when times are good it's where you can earn the best returns.
Is the Technology Select Sector SPDR the best option for investors?
If you have a lot of investing years left, then it makes sense to go big on tech. And the Technology Select Sector SPDR fund provides excellent diversification and a way to profit from the safest and largest tech stocks in the world. There could be better growth funds to target if there are certain areas of the economy you want to focus on more than others, but given the balance and stability this fund offers, the fund could very well be the best option for most long-term investors.
