Investing in exchange-traded funds (ETFs) is one of the most effective ways to create wealth in the stock market with minimal effort.
ETFs provide instant diversification as they often contain hundreds of stocks in one investment, saving you countless hours of research compared to buying individual stocks. Diversification also limits risk, adding variety to your portfolio and protecting you from market volatility.
In particular, industry-specific ETFs can help you significantly increase your returns. ETFs that track specific market sectors make it easy to gain exposure to that industry without having to do all the research required to invest in individual stocks.
If you're looking to invest in the technology industry, you can turn $200 a month into over $704,000 with a single tech ETF. Here's how.
Building a strong portfolio
of Vanguard Information Technology ETF (NYSE:MKT:VGT) It is a powerful technology fund that has significantly outperformed the market.
The fund contains 321 stocks across various sectors of the technology industry. The top three holdings are: Microsoft, appleand NVIDIA, Combined, these three stocks account for nearly 47% of the fund's total.
You could invest in Microsoft, Apple, and Nvidia individually, but investing in an ETF gives you more diversification: when Nvidia eventually pulls back (because it can't keep up this incredible growth forever), you'll have hundreds of other stocks in your portfolio to soften the blow.
This ETF has a relatively low expense ratio of 0.10%, meaning you'll pay $10 in fees per year for every $10,000 in your account balance. Considering that many similar funds charge fees of around 1% or more, the low expense ratio could save you thousands of dollars in the long run.
Increase your savings
One of the main benefits of investing in industry-specific ETFs is the potential for above-average returns, and this fund has significantly outperformed the market.
Over the past 10 years, the Vanguard Information Technology ETF has delivered an average annual return of 20.35%. Vanguard S&P 500 ETF (which tracks the S&P 500 Index) returned just 12.66% on average annually over that period.
But considering Nvidia shares make up a sizable portion of the fund's holdings, at least some of these impressive returns may be due to the company's phenomenal performance this year. However, the ETF has returned an average of 13.25% per year since its inception in 2004, which is better than the market's historical average of about 10% per year.
It's unclear how this fund will perform in the future, since past performance is no guarantee of future returns, but if you invest $200 per month, here's roughly how much you could accumulate over time, depending on whether your average annual return is 10%, 13%, or 20%:
|
Years |
Total Portfolio: Average annual return 10% |
Total portfolio: Average annual return 13% |
Total Portfolio: Average annual return 20% |
|---|---|---|---|
|
Ten |
$38,000 |
$44,000 |
$62,000 |
|
20 |
$137,000 |
$194,000 |
$448,000 |
|
30 |
$395,000 |
$704,000 |
$2,837,000 |
Data source: Authors' calculations via investor.gov.
At an average annual return of 13%, that would total about $704,000 over roughly 30 years of consistent investment, but if the fund can earn anything closer to its recent average annual return of 20%, you could potentially make much more in the long term.
Consider risk factors before purchasing
There are no guarantees in the stock market, and this is especially true when it comes to technology investments: This industry tends to thrive when the market is booming, but typically takes a big hit during downturns.
Before investing, make sure you are willing to take on the risk. Your investment may produce above-average returns in the future, but there may be some years where it will produce average or even below-average returns. If the potential benefits outweigh the risks to you, it may be a smart addition to your portfolio.
Also keep in mind that if you invest in a fund like this, the rest of your portfolio needs to be well diversified: This ETF only includes tech stocks, so you'll need a variety of stocks from other industries to adequately limit your risk.
Vanguard Information Technology ETF is a strong fund with a track record of above-average returns and has the potential to significantly increase your income. However, it is not without risk. Considering your goals and risk tolerance will help you determine whether it is right for you.
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Katie Brockman invests in Vanguard S&P 500 ETF and Vanguard World Fund-Vanguard Information Technology ETF. The Motley Fool invests in and recommends Apple, Microsoft, Nvidia and Vanguard S&P 500 ETF. The Motley Fool recommends buying Microsoft January 2026 $395 calls and selling Microsoft January 2026 $405 calls. The Motley Fool has a disclosure policy.
The post 1 Awesome Tech ETF That Can Turn $200 Per Month Into Over $704,000 was originally published by The Motley Fool.
