It’s possible to become a multimillionaire by investing in the stock market, but you’ll need to choose the right investments. Not all stocks are created equal, and some are better options than others.
Investing in exchange-traded funds (ETFs) is a smart way to diversify your investments, because you’re investing in dozens or hundreds of stocks at once. There are different types of ETFs, though, including broad-market funds and niche funds.
Broad-market funds, like S&P 500 ETFs, include stocks from a wide variety of industries. They tend to be lower risk, but they also experience lower returns, on average. Niche ETFs only contain stocks from a particular industry. They have the potential to earn higher-than-average returns, but they also carry more risk.
Investing in tech-focused ETFs can help you earn higher returns while still limiting your risk. ETFs are generally lower risk than investing in individual stocks, and the tech sector is known for its explosive growth. If you’re eager to invest in tech stocks, there are a few tech ETFs that can help you make a lot of money.
1. Vanguard Information Technology ETF (VGT)
The Vanguard Information Technology ETF (NYSEMKT:VGT) contains 341 stocks from the U.S. technology sector, with a few of its largest holdings including Apple, Microsoft, and NVIDIA.
The fund was established in 2004, so it has a relatively long track record. Since its inception, it has earned an average rate of return of around 13% per year. If your goal is to accumulate at least $2 million, you’d need to invest just over $550 per month for 30 years while earning a 13% annual return.
Of course, 30 years is a long time to wait. But ETFs are low-maintenance investments, so all you have to do is invest consistently and leave your money alone for as long as possible. With enough patience, you can save a significant amount of money with little to no effort.
2. Invesco S&P 500 Equal Weight Technology ETF (RYT)
The Invesco S&P 500 Equal Weight Technology ETF (NYSEMKT:RYT) includes 76 stocks that are in the information technology sector of the S&P 500. While this fund has fewer holdings and doesn’t provide as much diversification, the S&P 500 contains some of the strongest companies in the U.S. — which can limit your risk.
Since the fund’s inception in 2006, it has earned an average rate of return of around 14% per year. To earn at least $2 million in total savings, you’d need to save around $450 per month for 30 years while earning a 14% annual return.
3. SPDR S&P Software & Services ETF (XSW)
The SPDR S&P Software & Services ETF (NYSEMKT:XSW) includes 186 stocks, and it tracks the software and services segment of the S&P Total Market Index — which includes sub-industries such as application software, data processing, and IT consulting.
This ETF is younger than the other two on the list, as it was established in 2011. However, it’s also earned higher returns, with an average rate of return of around 22% per year since its inception. At that rate, you’d need to save around $100 per month for 30 years to accumulate $2 million.
Keep in mind, though, that because this fund doesn’t have an extensive track record, there are no guarantees you’ll see returns this high over the long run. All niche ETFs are riskier than broad-market funds, and your investments could experience higher levels of volatility.
Building a balanced portfolio
If you choose to invest in any tech ETF, it’s important to make sure the rest of your portfolio is well-diversified. In other words, don’t invest all your money into a single ETF — especially a niche ETF.
Once you have a solid core portfolio, putting some money behind a tech ETF could give your investments a boost. With enough time and patience, these funds could help you become a multimillionaire.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.