If you're not sure where to invest in the stock market, you should consider holding an exchange-traded fund (ETF) in your portfolio. Doing so can drastically simplify your decision-making process. ETFs hold dozens, hundreds, and sometimes even thousands of stocks. They can give you some excellent exposure through just a single investment. Vanguard funds, in particular, are popular choices due to their low fees and solid stock selection.
In some cases, you can also achieve considerable returns from investing in ETFs. One exceptional example is the Vanguard Information Technology Index Fund ETF (VGT +4.34%), which has generated some significant returns for investors in the past decade. Can it still be a good investment today?
The Vanguard Information Technology ETF is up 620% in 10 years
A big reason the Vanguard Information Technology fund has been a phenomenal investment to own over the past decade is because it focuses on top tech stocks, including big names such as Apple, Microsoft, and Nvidia -- three companies that are benefiting from the excitement over artificial intelligence (AI) in recent years. Together, those three stocks account for 44% of the fund's total weight. Overall, there are 316 stocks in the ETF.
When including the ETF's dividend (it yields a modest 0.6%), its total returns over the past 10 years come in at around 620%. That means a $25,000 investment in the fund then would be worth approximately $180,000 right now. In comparison, if you made the same size investment mirroring the S&P 500, it would be worth considerably less today, totaling around $94,000.
VGT Total Return Level data by YCharts.
Why the fund can still rally higher
As well as the ETF has performed over the past decade, there's still a bullish case to be made for investors who are contemplating the fund, which is due to the potential in AI.
Research company Gartner projects that AI chip sales will total at least $119 billion by 2027, which is more than double the $53 billion it totaled just last year. That's good news for Nvidia and other chipmakers, as it suggests demand will remain strong. The overall AI market is also looking promising. Analysts from Fortune Business Insights estimate that globally, it will grow at a compound annual growth rate of 20.4% until 2032.
While the Vanguard fund isn't exclusively an AI fund, tech stocks as a whole will benefit from businesses building AI models and related products and services. Companies will invest in new AI technologies, and they will need to upgrade their existing IT infrastructure to help ensure they have the capabilities to handle the added workloads. Many tech companies are at least indirectly involved with AI in some way, even if they aren't creating AI-specific products and services.
Should you invest in the Vanguard Information Technology ETF?
The Vanguard Information Technology ETF has a modest expense ratio of 0.10%, and it offers investors a great way to gain exposure to the best tech stocks in the world.
Given the soaring valuations in tech, investors may feel uneasy about investing in this type of fund. But while there may be a correction in the cards for some highly priced tech stocks in the near future, the long-term trajectory still looks promising. Tech has, for the most part, been a great option for long-term investors, and it has allowed investors to generate some incredible returns along the way.
As long as you plan to stay invested for years, this Vanguard fund can be a great investment to hold in your portfolio.
