Investing in exchange-traded funds (ETFs) is one of the most effective ways to generate wealth in the stock market with minimal effort.
ETFs can provide instant diversification, as many hold hundreds of stocks in a single investment. This saves you countless hours of research compared to buying individual stocks. Greater diversification can also reduce your risk, adding variety to your portfolio and protecting you from market volatility.
Industry-specific ETFs in particular can boost your income. An ETF that tracks a particular market sector can make gaining exposure to that sector easier without all the research that comes with investing in individual stocks.
If you want to invest in the tech sector, one tech ETF can help you turn $200 a month into $704,000 or more. Here’s how.
Building a strong portfolio
The Vanguard Information Technology ETF (NYSEMKT: VGT) is a powerful technology fund with a history of significantly outperforming the market.
This fund includes 321 stocks from different parts of the technology industry. The three largest holding companies are Microsoft, AppleAnd Nvidia, respectively. Together, these three shares make up almost 47% of the entire fund.
While you can simply invest in Microsoft, Apple, and Nvidia individually, investing in an ETF creates greater diversification. When Nvidia eventually pulls back (because it can’t maintain this phenomenal run forever), having hundreds of other stocks in your portfolio can help cushion the blow.
This ETF also has a relatively low expense ratio of 0.10%, meaning you’ll pay $10 a year in fees for every $10,000 in your account. Given that many similar funds charge fees of around 1% or more, a lower expense ratio could potentially save you thousands of dollars over time.
Boost your savings
One of the key benefits of investing in a sector-specific ETF is the potential for above-average returns – and this fund has significantly outperformed the market.
Over the past ten years, the Vanguard Information Technology ETF has averaged a return of 20.35% per year. For comparison, the Vanguard S&P 500 ETF (which tracks the S&P 500 index) achieved an average return of just 12.66% per year during that time.
However, at least some of these incredible returns may be due to Nvidia’s astonishing performance this year, as the stock makes up a significant portion of this fund’s makeup. That said, this ETF has still averaged a 13.25% annual return since its inception in 2004, which is higher than the market’s historical average of around 10% per year.
It is unclear how this fund will perform in the future as past performance is no guarantee of future returns. But if you were to invest $200 a month, this is about how much you could accumulate over time, depending on whether you earn 10%, 13%, or 20% average annual returns:
|
Couple of years |
Total Portfolio Value: 10% Avg. Annual return |
Total portfolio value: 13% Avg. Annual return |
Total portfolio value: 20% average annual return |
|---|---|---|---|
|
10 |
$38,000 |
$44,000 |
$62,000 |
|
20 |
$137,000 |
$194,000 |
$448,000 |
|
30 |
$395,000 |
$704,000 |
$2,837,000 |
Data source: Author’s calculations via investor.gov.
If you earn an average annual return of 13%, investing consistently for about 30 years will net you about $704,000. But if this fund manages to deliver returns closer to the more recent annual average of 20%, you could potentially earn a lot more over time.
Please consider the risk factor before purchasing
There are never any guarantees in the stock market, and this is especially true when it comes to technology investments. This sector tends to thrive when the market is rising, but it also tends to get hit hard during recessions.
Before investing, make sure this is a risk you are willing to take. Your investment may provide a higher than average return in the future, but in some years it may also provide an average or even below average return. If the potential reward for you outweighs the risk, this could be a smart addition to your portfolio.
Also keep in mind that when investing in a fund like this, the rest of your portfolio should be well diversified. Because this ETF only holds technology stocks, you’ll need a variety of stocks from other sectors to properly manage your risk.
The Vanguard Information Technology ETF is a powerhouse fund with a history of above-average returns and has the potential to boost your income. However, it is not without risks. Considering your goals and risk tolerance will help you decide if it is right for you.
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Katie Brockman holds positions in Vanguard S&P 500 ETF and Vanguard World Fund-Vanguard Information Technology ETF. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia and Vanguard S&P 500 ETF. 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.
1 Beautiful Tech ETF That Could Turn $200 a Month Into $704,000 or More was originally published by The Motley Fool
