Ten years ago, the idea of investing $1,000 in a technology ETF might not have seemed likely to make a huge difference in your portfolio.
But that decade would start with interest rates near all-time lows, be followed by a multitrillion-dollar stimulus package during the COVID pandemic, and end with the artificial intelligence (AI) boom, the greatest technological innovation since the internet.
Clearly, it would have been a great time to invest in tech stocks.
Image source: Getty Images.
The market-beating ETF
The Vanguard Information Technology ETF (VGT +0.68%) is one of the best ways to invest in the sector more broadly. Over the past 10 years, it would have returned an astonishing 793% or around 24.5% annually.
That means an initial $1,000 investment would have turned into $8,930.
But earning that return would have required patience and discipline. Over the last decade, the Vanguard Information Technology ETF experienced 15%+ drawdowns on five separate occasions. The largest was the 35% decline during the 2022 bear market.
Vanguard Information Technology ETF
Today’s Change
(0.68%) $0.83
Current Price
$122.31
Key Data Points
AUM
$170B
Dividend Yield
2.04%
Expense Ratio
0.09%
Top Holdings
NVDA
17.74%
AAPL
15.80%
MSFT
11.52%
Investors would have needed to buy and hold through all those pullbacks to achieve that nearly 800% return.
You should also know that the VGT portfolio is heavily invested in the AI boom. As of Sept. 18, 37% of its holdings are in the semiconductor industry, and another 20% are in the hardware subsector of technology.
If that’s what you’re looking for, that’s great. However, some investors see concentration risk in this setup.
The past decade provides an important lesson. Even smaller investments made over years or decades can turn into substantial sums of money thanks to the power of long-term compounding.
David Dierking has positions in Vanguard Information Technology ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
