The stock market has been on a nauseating rollercoaster of ups and downs this year, but those who have stuck it out have reaped the rewards.
As of this writing, the S&P 500 (^GSPC 0.09%) has soared by nearly 20% since it bottomed out in early April. Regardless of what the next few months have in store, the market will almost certainly perform well over the long haul. By investing now, you can potentially set yourself up for significant gains.
Where you invest matters, however, and not all investments will thrive over time. If you're looking for a hands-off investment that could supercharge your earnings with next to no effort, this growth ETF could potentially turn just $100 per month into half a million dollars or more. Here's how.
Image source: Getty Images.
A tech ETF with a strong track record
An ETF is a basket of securities grouped together into a single fund. Some ETFs track the broader market, while more niche funds may group stocks based on industry or company size, for example.
Perhaps the biggest advantage of investing in an ETF is that it requires very little effort. All of the stocks in the fund are chosen for you, which can save you countless hours of research. The only thing you need to do is stay invested for a few years or decades, and watch your portfolio grow.
If you're aiming to earn above-average returns, the Vanguard Information Technology ETF (VGT -0.13%) may be a smart buy. While tech stocks can carry more risk, there are a few advantages of this particular ETF:
- It's a broader tech fund: This ETF contains 307 stocks from many areas of the technology sector, from systems software to semiconductors to IT consulting services and more. While all of the stocks come from the same industry, investing in hundreds of stocks across multiple subsectors helps increase portfolio diversification -- and limit your risk.
- It contains mega-cap stocks: The median market cap in this fund is a whopping $905 billion, and several of the fund's largest holdings -- including Apple, Microsoft, and Nvidia -- have market caps in the trillions. These mega-cap stocks can be more resistant to market volatility, as industry-leading juggernauts are more likely to pull through tough economic times. This, too, can help limit risk.
- It has a long and successful history: The Vanguard Information Technology ETF was launched in 2004, and in that time, it has survived multiple major downturns. While that doesn't guarantee it will continue to thrive going forward, it's proven that it can pull through tough times.
Not only has this fund survived recessions and bear markets, but it's thrived in spite of them.
Over the last 10 years, the Vanguard Information Technology ETF has earned an average rate of return of 18.90% per year. Since its inception in 2004, its average return has been 12.82% per year -- still substantially higher than the market's historic average of 10% per year.
Building a $500,000 portfolio
How much you'll be able to earn with this ETF will, of course, depend on how the market fares in the coming years. But even if it doesn't earn significantly above-average returns like it has over the past decade, you could still accumulate hundreds of thousands of dollars or more.
Say you're investing just $100 per month, and you could earn an average return of 19% per year (in line with this ETF's 10-year performance), 13% per year (in line with its lifetime performance), or 10% per year (in line with the stock market's long-term average).
Depending on how many years you have to invest, here's approximately how much you could earn in total:
| Number of Years | Total Portfolio Value: 10% Avg. Annual Return | Total Portfolio Value: 13% Avg. Annual Return | Total Portfolio Value: 19% Avg. Annual Return |
|---|---|---|---|
| 20 | $69,000 | $97,000 | $199,000 |
| 25 | $118,000 | $187,000 | $482,000 |
| 30 | $197,000 | $352,000 | $1,160,000 |
| 35 | $325,000 | $656,000 | $2,777,000 |
Data source: Author's calculations via investor.gov.
To build a portfolio worth $500,000, it would take around 25 years of consistent investing while earning 19% average annual returns. But even at a 13% average annual return, you could still accumulate more than half a million dollars with a few more years of investing.
Best case scenario: Your investment continues earning the way it has been (or better) over the past decade, and you rack up close to $3 million over 35 years.
Tech ETFs can be subject to greater volatility, especially in the short term. So there's no way to know exactly how this fund will perform in the coming years. But the Vanguard Information Technology ETF has some strong advantages and a decades-long history of surviving market turbulence, and holding this ETF for the long haul could help you build substantial wealth with little effort.
