Exchange-traded funds (ETFs) generally provide a safer, lower-risk way to invest in particular sectors of the economy when compared to buying individual stocks. With many different funds to choose from, you should be able to find one that will help you invest broadly or narrowly, based on your specific strategy. Most will help you diversify your portfolio and improve your chances of seeing strong gains while lowering the likelihood of a poor return.
Many of these ETFs focus on high-performing growth stocks. And investing in these types of funds has yielded some strong returns for investors in recent years. Three funds in particular have more than doubled in value in just the past three years. They are: Invesco QQQ Trust (QQQ 1.20%), Vanguard Information Technology Index Fund (VGT 1.44%), and Schwab US Large-Cap Growth ETF (SCHG 1.30%).
Here's a closer look at why you may want to consider these three funds for your portfolio today.
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Invesco QQQ Trust
One of the most popular growth ETFs for investors is the Invesco QQQ fund. It offers a simple way to invest in growth stocks as it tracks the largest non-financial companies on the Nasdaq Stock Exchange via the Nasdaq-100 index. As valuations change, so too will the fund's exposure to different stocks. At 0.2%, the ETF's expense ratio is modest compared to other funds.
The biggest risk that comes with the fund is its exposure to tech; nearly two-thirds of the ETF's portfolio is in that sector. Consumer discretionary stocks make up 18% of the fund, but that's the only sector outside of tech that's in double digits. As a result, this won't be a terribly diverse fund in the sense that it won't give you broad exposure to the economy.
NASDAQ: QQQ
Key Data Points
However, focusing on tech hasn't been bad at all for investors. In three years, the Invesco fund has risen by 123%, which is far better than the S&P 500's gains of just 75% over that same time frame. As long as you're comfortable with the added volatility that can come with tech stocks, this can be a great fund to hang on to for the long haul.
Vanguard Information Technology Index Fund
As well as the Invesco fund has performed, the Vanguard Information Technology Index fund has done even better. In three years, it's up 133%, making it the top-performing ETF on this list. Unlike the Invesco fund, it isn't limited to stocks that trade on the Nasdaq. It also holds more stocks with over 300 in its portfolio. The fund also charges a relatively low expense ratio of 0.09%.
But as its name suggests, the focus is entirely on tech. Investors will, however, get exposure to different types of tech stocks, including companies involved with application software, semiconductors, systems software, hardware, and other areas. If you're bullish on tech and simply want to have coverage in all areas of tech, this is the ETF you'll want to own.
NYSEMKT: VGT
Key Data Points
However, given its strict focus on the sector, that also makes it arguably the riskiest ETF to own on this list. If there's a downturn in the markets and a sell-off due to an artificial intelligence bubble, this can be among the most vulnerable funds. In 2022, for example, when the S&P 500 crashed by 19%, this Vanguard tech fund fell by more than 30%. The potential upside is high with this ETF, but so is the risk.
Schwab U.S. Large-Cap Growth ETF
Another solid growth ETF to consider is the Schwab U.S. Large-Cap Growth ETF. This fund has risen by 127.6% in three years, putting it in the middle of the pack compared to these other ETFs.
This fund also has the lowest exposure to tech, with that sector accounting for 48% of its holdings. Communication services stocks make up 14% of its portfolio, and consumer discretionary takes up another 13%. Financials (8%), healthcare (7%), and industrials (5%) are the other major sectors that make up the fund. In total, the ETF has 197 holdings as of Dec. 9.
The ETF's focus is simply on large-cap stocks while minimizing fees for investors. At 0.04%, it has the lowest expense ratio on this list. This can be crucial when investing for the long haul to ensure fees aren't chipping away at your gains over time.
NYSEMKT: SCHG
Key Data Points
You'll still benefit from growth in the tech sector with this fund, but the overall risk is a bit lower than with the other funds. Anytime your focus is on growth, however, you'll have to accept some degree of risk in exchange for the potential to secure some great gains along the way.
