Exchange-traded funds (ETFs) are fantastic investment vehicles that allow you to own a basket of stocks without picking them individually. ETFs also pool the funds of many investors together, allowing you to easily spread your money across many stocks even if you don't have much money to invest.
When choosing an ETF, it's smart to keep it simple. Two standout options are the Vanguard Information Technology ETF (NYSEMKT: VGT), which tracks some of the publicly traded technology companies, and the Vanguard S&P 500 ETF (NYSEMKT: VOO), which follows the S&P 500's (SNPINDEX: ^GSPC) movements. Here's why putting $1,000 toward these ETFs and holding for the long haul could be a wise move.
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Benefit from high-growth opportunities in a simple way
The Vanguard Information Technology ETF provides exposure to one of the fastest-growing and often high-return industries: technology. The ETF follows the MSCI US Investable Market Information Technology 25/50 Index, giving investors broad exposure to the tech sector without focusing too much on large companies.
The companies in this ETF run the tech gamut, including software, hardware, IT services, cloud computing, and semiconductors. The 25/50 rule also ensures that no single stock will account for more than 25% of the fund, and the sum of all stocks with weights above 5% cannot exceed 50% of the index. In short, there is no excessive concentration in small stocks or mega companies.
This balanced approach to tech investing has had tremendous results. The Vanguard Information Technology ETF has gained about 500% over the past decade, compared to the S&P 500's 250% return. There's no guarantee those impressive returns will continue, but this gives you a real-world look at just how well a diversified tech ETF can perform.
Aside from the potential that investing in tech companies offers, there are two reasons why this ETF should be on your short list. The first is that technology is a key economic driver worldwide. Artificial intelligence (AI) alone will add an estimated $15.7 trillion to global GDP by 2030. Spreading your money across small and large tech companies alike could go a long way to boosting your long-term returns without having to pick individual winners along the way.
Second, the Vanguard Information Technology ETF has a low expense ratio of 0.09%. That means you'll spend $9 in annual fees for every $10,000 invested. Vanguard recently lowered many of its expense ratio fees, and this fund was cut from its already previously low expense ratio of 0.10%.
The ultimate ETF for diversification simplification
One of my favorite ETFs is the Vanguard S&P 500 ETF. You'd be hard-pressed to find a better way to diversify your investments while paying a stunning low expense ratio. This ETF follows the S&P 500 index, giving you instant diversification across all sectors of the U.S. while offering exposure to the largest publicly traded companies.
The goal of this ETF isn't to beat the market; it's to match its long-term returns -- and do so without having to think about which company has the largest economic moat, which industry is growing the fastest, or how the economy will respond to worldwide events.
What's great about the Vanguard S&P 500 ETF is that taking a passive approach to investing can still be a fantastic way to earn impressive returns. The S&P 500 has had a historic annual rate of return of 10.1% since 1957 (not accounting for inflation). And Vanguard's ETF has performed well as a result, with returns of 250% over the past decade.
The Vanguard S&P 500 ETF has a very low expense ratio of just 0.03%, so you'll pay just $3 for every $10,000 invested. That means you'll keep far more of your returns over time, all without having to pick a single stock to invest in.
Like any other investment, there's no telling how much the S&P 500 will rise or fall in the coming years. But as Warren Buffett once said, "Despite some severe interruptions, our country's economic progress has been breathtaking. Our unwavering conclusion: Never bet against America."
If you tend to agree, putting $1,000 toward either of these Vanguard ETFs is a great place to put your money and let it grow over a lifetime.
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Chris Neiger has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
