I have always made low-cost, broad index ETFs the core of my personal portfolio. I just don’t do enough research on individual stocks or specific sectors to feel like I can gain an informed advantage. That’s why I mainly stick with the overall market and broad thematic options like growth or dividend ETFs.
I deviated from this strategy at the beginning of the year and bought shares of it Vanguard Information Technology ETF (NYSEMKT: VGT) for the first time.
Did you miss Nvidia 2009? This rare signal flashes again. In 2009, a “double down” signal flashed for a little-known chip maker called Nvidia. For the first time in years, the same “Total Conviction” signal is flashing for a company one hundredth the size of Nvidia. Carry on”
You’re probably thinking that I chose to track performance based on returns over the last few years. I actually didn’t do that. I base my business on forward-looking fundamental metrics that reflect where I believe the sector is headed, not where it is. Additionally, I think valuations are reasonable enough at current levels that the risk/reward ratio is more than acceptable.
So I pulled the trigger.
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My argument for finally investing in VGT
Until recently, I was happy with the tech exposure in my portfolio as I held it Vanguard Total Stock Market ETF (NYSEMKT: VTI). Currently, the technology sector makes up 40% of this ETF. This means that even in a supposedly “diversified” fund, megacap technology drives performance. Anything more than that investing in technology would only further overweight an already overweight sector.
Furthermore, the artificial intelligence (AI) industry was all about potential. We knew that major tech companies were investing tens to hundreds of billions of dollars in AI development. But we didn’t have a clear idea of the return on investment (ROI). This idea, combined with high valuations of technology stocks, made the risk/reward ratio less attractive in my opinion.
Fast forward to 2026. The AI boom is now showing tangible results, and they are really good. The S&P 500 has grown profits 20% annually, led by the technology industry, its best growth rate since recovering from the COVID-19 pandemic.
Even better: the price-earnings ratio (P/E ratio) actually fell last year. Investors aren’t necessarily forced to pay an ever-higher price to buy tech stocks. The fund trades at about 23 times next 12-month earnings, which is quite reasonable given the earnings growth rate, which is expected to continue rising in the next few quarters.
That’s why I decided to buy shares of the Vanguard Information Technology ETF and be overweight technology in my portfolio because I believe the fundamentals, forecast earnings and revenue growth rates all justify it.
The biggest risk, in my opinion, is that tech stocks could decline significantly once growth rates slow or peak. However, I don’t think that will happen anymore. And I would be even more concerned if the forward P/E ratio is above 30. But the current valuations, given the fundamental background, make me feel like I’m not getting there.
Time will tell whether this proves to be a wise move. So far it has worked well. I hope it continues like this.
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David Dierking holds positions in Vanguard Information Technology ETF and Vanguard Total Stock Market ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has one Disclosure Policy.
“Here’s Why I’m Finally Putting New Money Into VGT After Avoiding It for Two Years” was originally published by The Motley Fool
https://finance.yahoo.com/news/heres-why-im-finally-putting-140500453.html
