Key Points
- Having more than 300 technology stocks, the ETF is also very diversified.
- The three businesses known as the “Magnificent Seven” mainly depend on holdings.
- It has had a good track record, though its shorter-term results can be volatile.
- 10 Stocks We Like More than Vanguard World Fund – Vanguard Information Technology ETF
This tech ETF generated an average annual return of about 20% in many years.
You want to invest in tech stocks, but you only have $500 or some similarly modest sum. That’s a great goal you should have set for yourself.
Not surprisingly, given the status of Apple and Amazon, information technology has been the best performer of the 11 sectors based on the Global Industry Classification Standard for the past year, five years, and 10 years by far. It was recently up by 543% over the past decade. Consumer discretionary, the next-most impressive sector, had only increased by 186%.
Well, when that many fantastic stocks are elbowing their way in and you can’t buy them all, it makes sense to invest in a best-of-class ETF concentrating on tech stocks. There are more than a few that might work for you — one of which is the Vanguard Information Technology ETF, VGT 0.07%.
Meet Vanguard Information Technology ETF
Compare the long-term performance of this excellent ETF to a comparably low-cost S&P 500 index fund.
| ETF | Expense Ratio | 5-Year Average Annualized Return | 10-Year Average Annualized Return | 15-Year Average Annualized Return |
|---|---|---|---|---|
| SPDR S&P 500 ETF (SPY) | 0.095% | 15.21% | 12.87% | 13.79% |
| Vanguard Information Technology ETF (VGT) | 0.1% | 22.16% | 20.10% | 18.74% |
Source: Morningstar.com. Figures as of Sept. 17, 2024.
Note that a low-cost, plain-vanilla S&P 500 index fund is itself a pretty good performer — and one to have on the shopping list. In any major market pullback, the S&P 500 will likely fall not nearly as far as a fund chock-full of tech stocks. Over long periods, the S&P 500 averages annual gains of short of 10% — not shabby growth at all.
You’ll see how your money might grow at different growth rates, and you’ll find that a 10% or even an 8% average growth rate can help you build significantly more wealth over the long haul. Investing in the Vanguard Information Technology ETF may result in a long-term average growth rate of 15%, the last of the three average annualized growth rates shown in the table below. It assumes annual investments of $7,000.
| $7,000 Invested Annually and Growing for… | At 8% Annualized Growth | At 10% Annualized Growth | At 15% Annualized Growth |
|---|---|---|---|
| 10 years | $109,518 | $122,718 | $163,445 |
| 15 years | $205,270 | $244,648 | $383,022 |
| 20 years | $345,960 | $411,018 | $824,671 |
| 25 years | $552,681 | $757,272 | $1,712,984 |
| 30 years | $856,421 | $1,266,604 | $3,499,698 |
| 35 years | $1,302,715 | $2,086,888 | $7,093,420 |
| 40 years | $1,958,467 | $3,407,963 | $14,321,677 |
Source: Calculations by author.
Recall that past performance does not predict future results. Of course, you may hope to earn more than average annual returns-say 10% or 15% but you should not bet on getting such returns. Embrace optimism while preparing for the worst. Save aggressively with prudent investment decisions.
Note also that you can invest more than $7,000 per year and that you can add to investments annually which case you could greatly outperform the results in the table above. So whether you play it safer with a Vanguard S&P 500 index fund or shoot for the moon with this Vanguard ETF or something in between-you can build quite a return.
What does the Vanguard Information Technology ETF hold?
The Vanguard Information Technology ETF is summarized thus by Vanguard:
An index fund tracks an index’s performance; an index represents the price change of stocks that are invested in a specified information technology sector.
It is managed passively, with full replication employed when feasible and sampling employed when necessary due to regulatory requirements.
Shares of companies that specialize in the production of electronics and computer goods or manufacturing products using the latest applied science.
It also calls the ETF aggressive and its risk over average. Because this ETF invests in so-called high-volatility securities, it advises investors to keep their money there for at least 10 more years. The expense ratio of the ETF is, the ETF’s annual fee- is a very low 0.1%, so you’ll pay $10 every year per $10,000 you have in the fund. The ETF recently held 317 stocks. These were its top 10:
| Stock | Percentage of Portfolio |
|---|---|
| Apple | 16.23% |
| Nvidia | 14.07% |
| Microsoft | 13.92% |
| Broadcom | 4.44% |
| Adobe | 1.72% |
| Salesforce | 1.62% |
| Advanced Micro Devices | 1.59% |
| Oracle | 1.55% |
| Accenture | 1.42% |
| Cisco Systems | 1.36% |
Source: Vanguard.com. Percentages as of Aug. 31, 2024.
Note that the top three holdings represent almost all the value of the ETF-almost 44%. That’s largely because, over the long run, all three of those stocks—members of the “Magnificent Seven”—have been such huge winners. They have grown in value robustly. Each today boasts a market capitalization of over $2.8 billion.
So if you are looking for some tech stocks, put this ETF on your radar. If you are looking to reduce risk and volatility, then consider an S&P 500 index fund. Or invest in both. Or look into some other excellent ETFs.
So, before investing in Vanguard World Fund – Vanguard Information Technology ETF, consider this.
Here are the top 10 stocks that investors should buy right now, according to the FinanceProsper Stock Advisor analyst team. the Vanguard Information Technology ETF (formerly the Vanguard World Fund) was excluded. In the upcoming years, the ten stocks that saw cuts have the potential to yield enormous profits.
Consider when Nvidia put this together on April 15, 2005. If you invested $1,000 at the time of our recommendation you’d have $740,704!*
See the average return of 777% on Stock Advisor, a real outperformance that crushes the market, compared to the S&P 500’s 168% return. Don’t pass up the most recent list of the top 5.
