A booming artificial intelligence trend has spurred interest in the sector, sending many tech stocks to new heights. But not all of these companies deserve the huge gains they're experiencing, and others might deserve more. That makes picking winners and losers in the midst of rising tech trends notoriously difficult.
Thankfully, there's a way to spread out your technology investment so that you can benefit from growing trends without having to find the winners yourself. The Vanguard Information Technology ETF (VGT +1.42%) puts your money into a basket of technology stocks, giving you plenty of exposure to the latest trends, all for less than $1,000.
Here's why you'll be glad to own this Vanguard ETF for the long haul.
Image source: Getty Images.
1. It's well-diversified
It might seem like no tech stock can lose these days, but that's simply not true, even amid this AI boom. It's certainly not the case during times of slower innovation. That's what makes the Vanguard Information Technology ETF especially great. The fund tracks the MSCI US Investable Market Information Technology 25/50 Index, which includes over 300 small- and large-cap companies.
The benefit of this is that you'll be invested in both established tech leaders and up-and-coming disruptors. Buying the fund right now will give you exposure to AI leaders, including Nvidia and Broadcom, as well as burgeoning industries, including quantum computing, with shares of Quantum Computing Inc.
Here's a quick overview of the fund's distribution among tech industries, with its top four focuses:
|
Technology Industry |
Weighted Exposure (approx.) |
|---|---|
|
Semiconductors |
31% |
|
Systems software |
20% |
|
Tech hardware and storage |
16% |
|
Application software |
15% |
Data source: Vanguard.
The rest of the fund is a compilation of communications equipment, IT consulting, semiconductor materials and equipment, and more. But the point here is that the fund spreads your investment across many tech industries while still benefiting from big trends, including artificial intelligence.
2. It has a strong track record
There are no guaranteed returns when buying an individual stock, and the same is true when investing in an ETF. But it does help to look at a fund's track record to get a sense of how well it's performed over time.
The Vanguard Information Technology ETF has been around since 2004. Since then, it's had an impressive average annual return of 14.1%. No one can predict how the fund will perform in the coming years, but if we were to assume the same returns, here's how $1,000 invested into the fund might end up over the next two decades.
|
Original Contribution |
Monthly Contribution |
Average Annual Return |
Years Invested |
Final Amount |
|---|---|---|---|---|
|
$1,000 |
$100 |
14.1% |
20 |
$124,511 |
|
$1,000 |
$200 |
14.1% |
20 |
$235,035 |
|
$1,000 |
$500 |
14.1% |
20 |
$566,608 |
Data source: Author's calculations.
While these are just estimates and there's no guaranteed return, you can see that if the fund continued to perform over the next 20 years the same way it has in its previous two decades, a $1,000 initial investment and regular monthly contributions could turn into a sizable sum.
3. It's also relatively inexpensive
Any time you invest in a fund, it's important to consider how much it charges in management fees. In some cases, an ETF expense ratio can eat into your earnings and end up taking a sizable chunk of your returns.
Thankfully, that's not the case with the Vanguard Information Technology ETF. Vanguard is well-known for charging some of the lowest fees in the industry, and the same is true for this fund, which has an expense ratio of just 0.09%. That's far below the average fee of 0.93% that similar funds charge.
NYSEMKT: VGT
Key Data Points
This means you'll pay just $9 in annual fees for every $10,000 you have invested with the fund, compared to $93 in annual fees with similar funds. When you consider its low fees and its track record of well-diversified tech investments, the Vanguard Information Technology ETF is a fantastic place to invest $1,000 right now and hold for years to come.
