The market is being carried on the back of growth stocks, and artificial intelligence (AI) has become the story everyone wants a piece of these days. While it's tempting to buy individual AI stocks like Nvidia, perhaps the better strategy for many investors is to invest in the trend through a growth-oriented exchange-traded fund (ETF), especially if you're just starting out.
Growth ETFs can give you a collection of the companies at the center of AI innovation. This lets you ride the wave without having to pick individual winners. Even if you have $1,000 or less to put to work, I'd recommend ETFs over individual stocks, as they give you an instant portfolio.
However, starting with $1,000 and just letting it sit is not going to build wealth. The key is to consistently invest through dollar-cost averaging and let compounding do its magic. Since ETFs are portfolios of stocks, they are a much easier way to implement this strategy.
Let's look at four growth ETFs that you can start investing in now.
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Invesco QQQ Trust
The Invesco QQQ Trust (QQQ 0.55%) has been one of the most reliable ways to invest in growth stocks over the past decade. It tracks the Nasdaq-100 index, which consists of the 100 largest Nasdaq-listed non-financial companies. The Nasdaq has always been tech-heavy, which means you're getting a portfolio of top growth stocks.
The ETF has given investors a 19.4% average annual return over the past 10 years, which easily surpasses the return of the S&P 500. Even more impressive is that it's beaten the S&P 500 on a 12-month rolling basis nearly 90% of the time during this stretch.
Vanguard Growth ETF
The Vanguard Growth ETF (VUG 0.54%) is another great option. It's built around the growth side of the S&P 500, which also gives you a heavy dose of tech stocks.
Many of the companies at the forefront of AI make up its top holding. In fact, Nvidia (12.3%), Microsoft (11.5%), Apple (10.5%), Alphabet (6.6%), Amazon (6.5%), Broadcom (4.4%), and Meta Platforms (4.4%) account for more than 55% of its portfolio. The ETF has been a strong performer over the years, generating a 17.1% yearly return over the past 10 years.
Vanguard Information Technology ETF
If you want to strip away everything else and just own tech stocks, the Vanguard Information Technology ETF (VGT 0.78%) could be right for you. While it's still an index fund, the ETF is unapologetically concentrated in technology stocks. Its top three holdings of Nvidia, Microsoft, and Apple make up about 44% of its holdings.
That concentration has led the ETF to generate a 22.4% average annual return over the past 10 years. One downside of the fund is that it does not include some top AI names, including Amazon and Alphabet, nor does it have any international AI beneficiaries. That said, its return has been tough to beat.
Global X Artificial Intelligence & Technology ETF
For those who want a pure-play AI angle, the Global X Artificial Intelligence & Technology ETF (AIQ 1.01%) is one of the best ways to go. Unlike broader growth ETFs, this one was built specifically to capture the AI theme. It owns nearly 90 stocks across semiconductors, software, and other sectors where AI adoption is accelerating.
About 69% of its portfolio is in U.S. stocks, so it's also giving you exposure to top international AI companies. This includes its top holding, Alibaba Group Holding, as well as Taiwan Semiconductor Manufacturing. The ETF is also not as concentrated as the ones listed above.
Since launching in 2018, the ETF has delivered a 16.6% average annual return. However, it's been performing better more recently, with a three-year average annual return of 28.3%. The fund's expense ratio is a bit high at 0.68%, but what you get is exposure that cuts across industries and geographies, since AI's effect is not limited to U.S. mega-caps.
