The right investment can boost your portfolio, and exchange-traded funds (ETFs) can be a simple way to generate wealth with almost no effort.
An ETF is a basket of securities rolled into one fund, meaning you can instantly invest in dozens of stocks with a single investment. Whether you're short on time or simply looking for a low-maintenance way to invest, opting for ETFs can help you build a diversified portfolio with much less effort than buying individual stocks.
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There are countless ETFs to choose from, and the right option for you will depend on your individual goals and preferences. But there is one powerful ETF that I am stocking up on in 2025 and beyond: the Vanguard Information Technology ETF(NYSEMKT:VGT).
The Vanguard Information Technology ETF is a technology-specific fund containing 314 stocks from all corners of the technology sector.
This fund is heavily focused on major players in the technology sector, with its three largest holdings (Apple, NvidiaAnd Microsoftrespectively) representing almost 45% of the entire fund. The other 311 stocks therefore each represent a much smaller percentage of the ETF.
This combination of industry leaders and small businesses can help balance risks and rewards. You'll get a stake in tech titans like Apple and Nvidia, but you'll also be able to enjoy the diversification benefits of investing in hundreds of stocks at once.
If you're looking for a way to invest in the technology sector with less effort, this ETF could be a wise option. This industry, in particular, has had a huge impact on the market as a whole, accounting for a large portion of the gains we've seen in recent years.
In fact, over the past 10 years, the Vanguard Information Technology ETF has earned an average rate of return of 20.59% per year. At this rate, if you invest, say, $200 per month, you could accumulate more than $1.2 million after 25 years.
Perhaps the biggest risk of investing in a technology-focused ETF is that the sector tends to be more volatile than more established sectors of the market. The technology field often experiences explosive returns when the market is booming, but downturns also tend to be more severe.
Concrete example: during the last bear market between January and October 2022, the S&P500(INDEXSNP: ^GSPC) fell by around 25%. The Vanguard Information Technology ETF, however, has fallen nearly 35% during this period.
But then again, good times can often offset these recessions. Since the start of the new bull market in October 2022, this ETF is up 114% compared to around 70% for the S&P 500.
Of course, no one knows if these returns will remain constant in the future, and it's always possible that this ETF won't beat the market at all. But when investing in more volatile funds, be prepared to get out of the lows before hitting the highs.
If you choose to invest in the Vanguard Information Technology ETF, it is wise to verify that the rest of your portfolio is properly diversified. Investing only in the technology sector significantly increases your risk, so you should make sure you also invest in plenty of stocks from other sectors to better protect yourself against volatility.
This could mean investing in a broad market fund like an S&P 500 ETF or a total stock ETF, which would instantly expose you to stocks across a wide range of sectors. You can also choose to create a custom portfolio filled with individual stocks from areas outside of the technology sector.
If you're willing to take a little more risk for the chance to earn above-average returns, the Vanguard Information Technology ETF could be a fantastic buy through 2025. As part of a well-diversified portfolio , it could potentially increase your income. with virtually no effort on your part.
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Katie Brockman has positions in the Vanguard World Fund-Vanguard Information Technology ETF. The Motley Fool holds positions 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 Mad Motley has a disclosure policy.
