The Smartest Tech ETF to Buy With $500 Right Now

So you want to invest in tech stocks -- but you only have $500, or some similarly modest sum. It's an excellent goal for you to have.

According to the folks at Fidelity, among the 11 sectors based on the Global Industry Classification Standard, information technology has been the best performer over the past year, five years, and 10 years -- by far. It was recently up by 543% over the past decade. The next most impressive sector, consumer discretionary, had only gained 186%.

So what are you going to do when so many amazing stocks are calling you, but you can't buy them all? Consider investing in a top-performing exchange-traded fund (ETF) that specializes in tech stocks. There are more than a few that could serve you well -- one of which is the Vanguard Information Technology ETF (NYSEMKT: VGT)

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Meet the Vanguard Information Technology ETF

Check out the long-term performance of this marvelous ETF relative to a similarly low-fee S&P 500 index fund.

Source: Morningstar.com. Figures as of Sept. 17, 2024.

Keep in mind that a simple, low-fee S&P 500 index fund is a fine performer on its own, and is also worth your consideration. In periods when there are big market pullbacks, the S&P 500 is likely to fall less sharply than a tech-heavy fund. And the S&P 500 has averaged annual gains of close to 10% over long periods -- which is a respectable growth rate.

Consider how your money might grow at various growth rates and you'll see that a 10% or even 8% average growth rate can help you get much wealthier if you invest for the long haul. The table below models growth at average annualized rates of 8%, 10%, and 15%, the last of which is a possible long-term average growth rate if you invest in the Vanguard Information Technology ETF. It assumes annual investments of $7,000.

Source: Calculations by author.

Keep in mind that past returns aren't any kind of guarantee of future ones. You should absolutely hope for average annual returns topping 10% or even 15%, but don't count on them. Hope for the best, but prepare for the worst by saving aggressively and investing rationally.

Note, too, that you could invest more than $7,000 per year and that you can invest increasing sums from year to year -- in which case, you could vastly outperform the results in the table above. So whether you play it safer with an S&P 500 index fund or aim for higher returns with this Vanguard ETF -- or invest in both -- you can amass quite a return.

What's in the Vanguard Information Technology ETF?

Vanguard describes the Vanguard Information Technology ETF's like this:

Seeks to track the performance of a benchmark index that measures the investment return of stocks in the information technology sector.

Passively managed, using a full-replication strategy when possible and a sampling strategy if regulatory constraints dictate.

Includes stocks of companies that serve the electronics and computer industries or that manufacture products based on the latest applied science.

It also notes that the ETF is aggressive, with a higher-than-average risk level. Given its high volatility, it is suggested that people who put money into it hold onto that investment for a decade or more. Its expense ratio (annual fee) is a puny 0.1%, meaning that you'll pay $10 annually per $10,000 you have in the fund. The ETF recently held 317 stocks. These were its top 10:

Source: Vanguard.com. Percentages as of Aug. 31, 2024.

Clearly, the top three holdings make up much of the value of the ETF -- totaling 44%. That's largely because those three stocks -- all members of the "Magnificent Seven" -- have been such big winners over the long term, growing in value robustly. Each has a market capitalization of more than $2.8 billion today.

So if you're looking for tech stocks, give this ETF some consideration. If you want less risk and volatility, consider an S&P 500 index fund. Or buy into both. Or check out some other top-notch ETFs.

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Selena Maranjian has positions in Adobe, Advanced Micro Devices, Apple, Broadcom, Microsoft, Nvidia, Oracle, and Salesforce. The Motley Fool has positions in and recommends Accenture Plc, Adobe, Advanced Micro Devices, Apple, Cisco Systems, Microsoft, Nvidia, Oracle, and Salesforce. The Motley Fool recommends Broadcom and recommends the following options: long January 2025 $290 calls on Accenture Plc, long January 2026 $395 calls on Microsoft, short January 2025 $310 calls on Accenture Plc, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.