Tech stocks have been soaring in recent years due to opportunities in artificial intelligence (AI), and that has propelled the S&P 500 index to new heights. In three years, the broad index has risen by roughly 73%, which translates into an average annual growth rate of approximately 20% -- far above the index's long-run average of 10%. Future performance is not guaranteed, but investors are excited.
Valuations are high, particularly for tech stocks. That means investing in them can be risky, as they could have a long way to fall in the event of a market crash or correction. One exchange-traded fund (ETF) that's full of tech stocks is the Vanguard Information Technology ETF (VGT 1.69%). The fast-growing ETF is up a staggering 120% in the past three years, vastly outperforming the S&P 500. Is it due for a decline this year, or can it still be a safe investment to hold in 2026?
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The Vanguard Information Technology fund is dependent on a few big tech giants
This top-performing fund has 320 stocks in its portfolio, but what may be concerning to risk-averse investors is that its top three holdings make up around 45% of the entire fund. Nvidia, Apple, and Microsoft are far and away its largest positions, with each one accounting for more than 12% of the entire fund.
Most of the other stocks in the fund account for less than 2% on their own. However, with these three behemoths taking up such a big chunk of the ETF, that inevitably means that how the fund does is going to be determined by these stocks. Not only are they its largest holdings, but how they do, all tech stocks are likely to follow, given that they are the industry leaders. And these tech giants all have market caps in excess of $3 trillion, and their respective price-to-earnings multiples are over 30; they aren't cheap investments, and expectations are sure to be high.
NYSEMKT: VGT
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Is it too risky to be holding the Vanguard Information Technology fund this year?
Tech stocks may seem expensive, but that doesn't mean that an all-out crash in tech is inevitable this year. Companies still plan to invest heavily in AI this year, which could send many stocks to new highs in the months ahead. However, there's no crystal ball to say for sure what will happen.
The key to whether this ETF is still a good fit for your portfolio is going to come down to your individual risk tolerance. If you're a long-term investor who's comfortable with risk, then it may still be a good investment to hang onto.
But if you're a retiree or nearing retirement, then now may be a good time to consider investing in less risky stocks, which possess less volatility. While a crash may not be a certainty, it is definitely a possibility. You only have to look back to the sudden and drastic free fall that took place in the markets last year when "reciprocal" tariffs were announced as a reminder of how quickly things can fall off the rails.
