The technology sector has been a great place to put your money over the past few years, as artificial intelligence (AI) and other tech stocks mostly soared. But AI is disrupting so many industries that old tech stalwarts, which once seemed impervious to competition, are being disrupted.
That can make picking individual tech-stock winners difficult and is why putting your money into a technology exchange-traded fund (ETF) may be a smart move. Doing so allows you to spread your money across many tech stocks all at once. One of the best ones to buy with $2,000 right now is the Vanguard Information Technology ETF (VGT 1.96%).
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This ETF benefits from tech, no matter which company wins
One of the biggest benefits of investing in the Vanguard Information Technology ETF is that you'll be invested in about 300 small- to large-cap technology companies all at once. That's because the fund tracks the MSCI US Investable Market Information Technology 25/50 index, which includes some of the most popular tech stocks, such as Nvidia and Palantir Technologies, as well as smaller tech players, including Lumentum.
You'll also be invested in a wide range of tech industries, including semiconductors, software, tech hardware, and communications, as just over half of the fund is focused on semiconductor and software stocks. While the fund isn't immune to volatility, its investment diversity should help you avoid some of the most extreme price swings.
All of this means that you won't have to worry if AMD begins stealing AI processor market share from Nvidia a few years from now or if Adobe continues losing ground to upstart AI software companies. If the tech sector is growing, this fund has a good chance of growing, as well.
The VGT ETF has an impressive track record
There's no guarantee of a return when you buy any stock or ETF, but it can help to look at a fund's performance over time to see whether it's been able to capitalize on large trends. If it has, it's an indicator that it's diversified enough to potentially do the same in the future.
The Vanguard Information Technology ETF was launched in 2004, so it has more than 20 years to prove it has tapped into the early growth of tech stocks, bounced back after the Great Recession, and currently benefits from AI. That's why it's good to see that the fund has an average annual return of about 14% since its inception.
Looking back over a shorter period, during the past three years, the Vanguard Information Technology ETF has gained 96%, compared to the S&P 500's 64% gain. Again, this doesn't guarantee future returns, but it does show that the fund has successfully invested in growing tech companies in the past.
NYSEMKT: VGT
Key Data Points
The ETF's fees are some of the lowest in the industry
Finally, it's important to note that the fund charges a low expense ratio. All funds charge fees, and ETF fees for passively managed funds, like the Vanguard Information Technology ETF, are typically pretty low. Vanguard ETFs often go one step further and have some of the lowest fees in the industry.
The Vanguard Information Technology ETF has an expense ratio of just 0.09% -- well below the average fee of 0.53% for similar funds. This means that for every $2,000 you invest in the fund, you'll pay just $1.80 annually.
That's obviously a very low amount. As your investments grow over time, you'll be able to hold onto far more of your returns than if you were paying a much higher fee.
