There are countless factors to consider when choosing an investment, such as your goals, risk tolerance, and how much time you can put toward your portfolio.
For many people, exchange-traded funds (ETFs) are the ideal way to invest in the stock market. With just one ETF, you can invest in hundreds of stocks at once with less time and research than buying individual stocks. Whether you’re a beginner investor or just want a no-fuss investment, ETFs can be a smart choice.
Despite being less effort than individual stocks, ETFs still pack a punch. All funds are different, but there’s one superstar performer that could potentially turn just $200 per month into $1.3 million or more over time.
A power player for your portfolio
If you’re looking to maximize your returns in the stock market, buying an industry-specific ETF could help achieve that goal. These types of funds only include stocks from one sector of the market, helping gain exposure to a more niche selection of companies without having to buy individual stocks.
For those looking to invest in the tech sector, the Vanguard Information Technology ETF (NYSEMKT: VGT) can be a fantastic choice.
This ETF contains 317 stocks from various areas of the technology industry, including semiconductors, systems software, application software, and more. The three largest holdings in the fund are Apple, Nvidia, and Microsoft, respectively, and combined, they make up just over 44% of the entire fund.
One of the main advantages of investing in an ETF like this over individual stocks is that you can gain access to hundreds of smaller companies with the potential for explosive growth. Industry-leading juggernauts like Apple, Nvidia, and Microsoft are likely to see sustained growth over time. But if even one or two of the other 314 stocks in the fund become superstar performers, you could see serious returns.
How much could you earn with this ETF?
Historically, this ETF has a strong track record of outperforming the market. Over the last 10 years, the Vanguard Information Technology ETF has earned an average rate of return of 20.68% per year. Since its inception in 2004, its average return is 13.55% per year.
How it will fare over time is anyone’s guess, and with higher-risk investments like tech ETFs, there’s always a chance it could underperform. Even if it does continue earning above-average returns, it could experience more severe volatility in the short-term compared to more stable investments like S&P 500 ETFs.
Before you consider buying, then, it’s important to ask yourself whether you’re comfortable with higher-risk, higher-reward types of investments. And if you do choose to buy, be sure you’re willing to keep your money in the market for at least a decade or two to reduce the impact of volatility.
Over the long haul, it’s possible to make a lot of money with this type of ETF. Say, for example, you choose to invest $200 per month. Here’s approximately how much you could earn over time depending on whether you’re earning a 12%, 16%, or 20% average annual rate of return:
|
Number of Years |
Total Portfolio Value: 12% Avg. Annual Return |
Total Portfolio Value: 16% Avg. Annual Return |
Total Portfolio Value: 20% Avg. Annual Return |
|---|---|---|---|
|
20 |
$173,000 |
$277,000 |
$448,000 |
|
25 |
$320,000 |
$598,000 |
$1,133,000 |
|
30 |
$579,000 |
$1,273,000 |
$2,837,000 |
Data source: Author’s calculations via investor.gov.
To reach roughly $1.3 million in total savings, you’d need to invest consistently for 30 years while earning a 16% average annual return — which is slightly higher than this ETF’s 13.55% average since inception, but lower than its 20.68% average over the past 10 years.
However, even if you earn lower-than-average returns at just 12% per year, you could still earn hundreds of thousands of dollars over time. And if you’re lucky enough to continue earning 20% average annual returns going forward, you could see substantial returns over decades.
Again, though, ETFs like this do come with increased risk, so be sure you’re accounting for that before you buy. This shouldn’t be the only fund you own, because it lacks diversification with all of its stocks from the same industry. As part of a well-diversified portfolio, however, it can pack a serious punch and potentially help you build life-changing wealth over time.
Should you invest $1,000 in Vanguard World Fund – Vanguard Information Technology ETF right now?
Before you buy stock in Vanguard World Fund – Vanguard Information Technology ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard World Fund – Vanguard Information Technology ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $826,069!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of October 14, 2024
Katie Brockman has positions in Vanguard World Fund-Vanguard Information Technology ETF. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
This Superstar ETF Could Turn $200 per Month Into $1.3 Million. Here’s How. was originally published by The Motley Fool
