The technology sector is booming right now, largely due to the monumental growth of artificial intelligence (AI). But picking long-term tech winners is notoriously difficult, and it can be safer to spread your money out among many companies.
That's what makes buying a technology exchange-traded fund (ETF) a good idea. You'll be invested in a variety of leading tech players and benefit regardless of who dominates. You can also invest just $100, or even less, depending on which brokerage you use.
If this sounds appealing to you, here's why buying the Vanguard Information Technology ETF (VGT +0.71%) is a great place to put your money right now.
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Tech will likely dominate the market's returns for years to come
The Vanguard Information Technology fund spreads its investment across 300 small- and large-cap technology companies, tracking the MSCI US Investable Market Information Technology 25/50 Index. This provides investors with exposure to a range of top semiconductor and software companies, including Nvidia and Microsoft.
The fund currently has more than 51% of its holdings in semiconductor and software companies, with the remainder comprising tech hardware, application software, communications equipment, and other related industries. Not only is this significant diversification, but because the fund is invested in both large and small-cap companies, you won't miss out on owning rising disruptors in the industry.
It is also important to note that technology stocks have been a dominant force in the stock market's rise, essentially since the 1990s. The AI boom is the latest iteration of technology's influence on the market, and there's no end in sight for the influence of technology stocks.
The result has been very positive for investors who own the Vanguard Information Technology ETF. The fund has had an average annual return of 14.4% since its inception in 2004.
Of course, there's no guarantee it will continue at that pace. Still, it's an indicator of how well the fund can perform when technology companies are benefiting from long-term opportunities, such as the early days of the internet, mobile devices, and now AI.
The fund won't steal your returns
One thing to remember when choosing an investment fund is that all of them charge an expense ratio. This is a small fee that you pay annually to cover the costs of the investment firm managing the fund.
ETF expense ratios are often less expensive than mutual fund fees, so you're already ahead if you're considering an ETF. But you'll do even better by choosing a Vanguard ETF because its funds have some of the lowest expense ratios in the industry.
NYSEMKT: VGT
Key Data Points
The Vanguard Information Technology ETF is no exception, charging an expense ratio of just 0.09% -- significantly lower than the average fee of 0.94% for similar funds. That means if you have $10,000 invested in this fund, you'll only pay $9 in annual fees.
With such low fees, you'll be able to keep more of the gains you earn over time, making your investment much more profitable than if you were to buy a more expensive fund with similar returns.
The same buy-and-hold rules for stocks apply to ETFs
It's important to remember that when buying an ETF, you should apply the same buy-and-hold strategy to owning it as you would any stock. Jumping in and out of funds when they rise and fall is a good way to diminish your potential returns.
Instead, consider buying the Vanguard Information Technology ETF and holding it for at least five years, ideally longer, and add to it when possible. Do that for years, and you'll be well on your way to building a strong portfolio.
