Every investing textbook tells you the same thing: Don't put too much money in sector-specific exchange-traded funds (ETFs). Diversify broadly. Own the whole market.
This advice made perfect sense -- in 1995. But the economy is undergoing a fundamental transformation that makes the old playbook dangerously obsolete.
The Vanguard Information Technology ETF (VGT 1.39%) isn't just another tech fund. It's your ticket to owning the companies building the next economy -- one that is rapidly emerging from the shadows.
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The numbers don't lie
Look at the performance gap and try not to gasp. Over the past 10 years (2015 to 2025), this Vanguard tech fund has delivered a staggering 20.3% annualized return. The S&P 500 (^GSPC 0.83%)? A respectable but comparatively pedestrian 11.1%.
That 9.2-percentage-point difference might sound modest, but compound it over time, and you're talking about life-changing wealth creation. A $10,000 investment in the Vanguard Information Technology ETF 10 years ago would be worth roughly $62,000 today, versus $30,000 in an S&P 500 fund.
This isn't a temporary anomaly driven by tech euphoria. Technology spending is projected to reach $5.74 trillion in 2025 -- a 9.3% increase from 2024. But here's what few investors understand: That figure barely scratches the surface. Technology isn't just growing as a sector. It's absorbing every other sector.
Banks? They're technology companies that happen to move money. Retailers? Tech companies that happen to sell products. Auto manufacturers? Software companies wrapped in metal. When everything is technology, owning "just tech" means owning everything. Tech is the foundation of modern society.
Why those sky-high valuations make perfect sense
The "Magnificent Seven" stocks in this fund trade at valuations that make traditional investors uncomfortable. Apple is at 26 times forward earnings. Microsoft stock is commanding a premium of 32 times forward earnings. Nvidia, for its part, trades at over 35 times projected earnings.
But here's what the bears miss: We're not pricing in yesterday's growth. We're pricing in tomorrow's revolution.
Consider artificial general intelligence (AGI). Five years ago, AGI was science fiction -- something for 2050 or beyond. Today? We're arguably witnessing its primitive birth. ChatGPT can write code, analyze data, and reason through complex problems. It's not true AGI yet, but it's close enough to transform industries.
And this primitive version is only getting smarter. Every month brings breakthroughs that would have seemed impossible a year earlier.
When AGI fully arrives -- and it's now a question of when, not if -- the economic implications are staggering. McKinsey estimates artificial intelligence (AI) could add $13 trillion to global economic output by 2030. That's the equivalent of adding another economy the size of the United States.
The companies building this future deserve premium valuations because they're not just growing revenues. They're creating entirely new categories of human possibility.
Beyond the giants
Yes, the Vanguard Information Technology ETF is top-heavy. Apple, Microsoft, and Nvidia comprise about 45% of the fund right now.
Critics point to this concentration as a weakness. They're missing the forest for the trees. These aren't just big companies -- they're the architects of our digital infrastructure. Microsoft's Azure powers the cloud. Nvidia's chips enable AI. Apple's ecosystem defines how billions interact with technology daily.
But this fund's real genius lies in what else it owns: over 300 companies building tomorrow's breakthroughs. Palantir Technologies is turning data into strategic advantage. Cadence Design Systems creates the software that designs next-generation chips. Advanced Micro Devices is challenging Intel's dominance.
Quantum computing pioneers. Cybersecurity innovators. Robotics manufacturers. The Vanguard Information Technology Index Fund is the big tent of tech.
This isn't picking winners in the AI race or betting on which quantum computing start-up will succeed. It's owning the entire ecosystem. When one company stumbles, another surges. When new technologies emerge, they're automatically added. The fund rebalances itself, ensuring you own tomorrow's giants, not just today's.
The smart overweight strategy
Traditional wisdom says to stay broadly diversified across most, if not all, sectors. But when one sector is rewriting the rules of every business on Earth, traditional wisdom becomes tomorrow's regret. The tried-and-true investing strategies must be redrawn for a world where software eats everything, AI makes decisions, and quantum computers solve the unsolvable.
The Vanguard Information Technology ETF isn't just the best Vanguard ETF to buy right now. For investors who understand where the world is heading, it's not even close.
