My kids don't care about stock tickers. They care about video games, soccer practice, and whether we're getting pizza for dinner. However, I care about their financial future -- and that's why I continue to add shares of the Vanguard Information Technology ETF (VGT +0.71%) to their custodial accounts.
The thesis is simple: By the time my children are adults in the mid-2030s, artificial intelligence (AI) will be woven into nearly every aspect of the economy. The companies building that future -- the chipmakers, the software platforms, the cloud infrastructure providers -- are exactly what this fund owns. And I'd rather let Vanguard handle the stock selection than try to guess which specific names will dominate a decade from now.
Image source: Getty Images.
The AI exposure they'll actually keep
The Vanguard Information Technology ETF holds over 300 companies across the technology sector, weighted by market capitalization. That means the fund automatically allocates more capital to the winners as they grow larger.
Today, for instance, Nvidia (NVDA 1.83%) sits at the top of the fund's holdings, comprising roughly 18% of assets -- a reflection of its dominance in AI chips. Apple follows at about 14%, with Microsoft close behind at 13%. Broadcom, Palantir Technologies, and Oracle round out the top holdings.
NYSEMKT: VGT
Key Data Points
However, what I find most compelling is that I don't have to guess which firms will lead in 2035. As new winners emerge and old leaders fade, the index rebalances automatically -- shifting weight toward the companies that grow the largest and reducing exposure to laggards. My kids won't need to read earnings reports or worry about balance sheets. The fund does the work for them.
That said, the fund is top-heavy. The three largest holdings alone account for roughly 45% of assets, which means the fund is more volatile than a broad-market index. For a multidecade horizon, I'm comfortable with that trade-off, but it's worth knowing that drawdowns can be steep when megacap tech stumbles.
The cost advantage compounds
Vanguard built its reputation on low fees, and this fund lives up to that standard. The expense ratio is just 0.09% -- meaning my kids pay only 90 cents annually for every $1,000 invested. The average technology sector fund charges more than 1%, so Vanguard's cost advantage compounds dramatically over a 20-year holding period.
That difference matters more than most investors realize. Every dollar saved on fees is a dollar that continues to grow in value. Over the course of two decades, even a 0.5% annual fee difference can translate into tens of thousands of dollars in additional wealth.
The fund also trades with high liquidity and has amassed over $110 billion in assets, making it one of the largest sector ETFs in existence. That scale reinforces Vanguard's ability to keep costs low. A portfolio turnover rate of just 7.8% means fewer taxable events and lower transaction costs compared to actively managed funds.
The long-term track record
Past performance doesn't guarantee future results, but history offers context. The Vanguard Information Technology ETF has delivered an average annual return of roughly 22% over the prior 10 years, far outpacing the broader market. Technology companies generate substantial cash flows and reinvest aggressively in research and development, which has historically rewarded patient shareholders.
Will the next decade look exactly like the last? Probably not. But the structural forces driving technology adoption -- cloud computing, AI integration, digital transformation -- show no signs of slowing. If anything, AI is accelerating the pace of change.
Why I keep buying
I'm not trying to time the market for my kids. I'm trying to give them ownership in the companies that will shape their adult lives. When they're old enough to manage their own portfolios, they'll inherit positions in whatever firms are leading the technology sector at that point -- not the names I guessed would matter back in 2025.
The Vanguard Information Technology ETF isn't the only AI ETF in their accounts, but it's the one I add to most consistently. Low costs, automatic rebalancing, and direct exposure to the AI revolution make it an ideal holding for investors measured in decades rather than quarters.
My kids might not appreciate it today. But someday, when they're using whatever technology has replaced the smartphone, they'll own a piece of the companies that built it.
