If I Could Only Own 1 ETF for the Next 20 Years, Here's Exactly What I'd Pick and Why
Key Points
Over a 20-year period, tech stocks have outperformed the broader market.
If I could choose only one ETF, it would be a more aggressive one, like a tech ETF.
If tomorrow you had to sell off all of your exchange-traded funds (ETFs) and just invest in one lone ETF for the next 20 years, which one would it be?
For me, it would be the Vanguard Information Technology ETF (NYSEMKT: VGT).
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My thought process is that, for a 20-year period or more, I want an aggressive growth fund, because history has shown that over long periods, many aggressive growth funds outperform the market and other investment styles, like value or income. Over a longer investment horizon, the fund has more time for its growth to compound and navigate the inevitable, sometimes volatile, ups and downs.
Also, I want to invest in a sector that has been driving the market for the past 40 years or more, and will probably continue to do so for decades to come: technology.
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There are, of course, many technology-focused ETFs, but I would select the Vanguard Information Technology ETF as my one ETF for a few specific reasons.
Why the Vanguard Information Technology ETF
Among all of the major technology-centric ETFs on the market, the Vanguard Information Technology ETF casts the widest net. It holds roughly 318 technology stocks, which is more than just about all tech ETFs.
I like that diversification within the sector, which we all know can be volatile. It tracks the MSCI US Investable Market Information Technology 25/50 Index, an index of large, medium, and small U.S. companies in the information technology sector.
It is generally made up of internet services and infrastructure companies, which include data centers, cloud networking, and storage infrastructure. It also encompasses information technology consulting and services companies, hardware and equipment companies, and semiconductor manufacturers.
Again, it is a sector fund, so it is inherently riskier than more diversified funds, but among tech ETFs, it includes a broader mix of tech stocks of different sizes and from different areas of the sector.
Best-in-class performance
Over the past 20 years, the Vanguard Information Technology ETF has been the best performer among tech ETFs with a similar track record.
It is very close, as the chart below shows, but the VGT ETF has averaged a 17% average annualized return over the past 20 years. In addition, it has a very low expense ratio of 0.09%.
Data by YCharts.
Ultimately, for a 20-year period, I would favor the Vanguard Information Technology ETF or a similar tech-focused ETF over anything -- even an S&P 500 fund.
The VGT ETF has proven to outperform the large-cap benchmark over time, and with such a long investment horizon, it is preferable to have that core holding be something more aggressive.
Certainly, there is no guarantee that the tech sector will perform as well over the next 20 years as it did over the past 20 years. Also, investors who have a lower appetite for risk may want to opt for a more meat-and-potatoes ETF, like the Vanguard S&P 500 ETF (NYSEMKT: VOO).
Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.