Here's Why I'm Finally Putting New Money Into VGT After Avoiding It for 2 Years

I've always made low-cost, broad index ETFs the core of my personal portfolio. I simply don't research individual stocks or narrow sectors enough to feel like I can give myself an informed advantage. So I stick mostly to total market and broadly thematic options, such as growth or dividend ETFs.

I went outside of that strategy earlier this year, buying shares of the Vanguard Information Technology ETF (NYSEMKT: VGT) for the first time.

You're probably thinking that I decided to chase performance based on returns of the past few years. I actually didn't. I base my trades on forward-looking fundamental metrics that reflect where I think the sector is going, not where it's been. Plus, I think the valuations are reasonable enough at current levels that the risk/reward trade-off is more than acceptable.

So I pulled the trigger.

Image source: Getty Images.

My case for finally investing in VGT

Up until recently, I'd been satisfied with the tech exposure in my portfolio based on holding the Vanguard Total Stock Market ETF (NYSEMKT: VTI). Right now, tech is 40% of that ETF. That means that even in what's supposed to be a "diversified" fund, it's megacap tech that's driving its performance. Anything invested in tech beyond that would just be further overweighting an already overweighted sector.

In addition, the artificial intelligence (AI) trade had mostly been about potential. We knew that the big tech companies were investing tens to hundreds of billions of dollars in AI development. But we didn't have a clear sense of the return on investment (ROI). That idea, combined with high valuations on tech stocks, made the risk/reward trade-off, in my opinion, less attractive.

Fast-forward to 2026. The AI boom is now producing tangible results, and they've been really good. The S&P 500 has been growing earnings by 20% annually, led by tech, its best growth rate since the COVID-19 pandemic recovery.

Even better, price-to-earnings (P/E) multiples have actually fallen over the past year. Investors aren't necessarily being forced to pay an increasingly premium price to buy tech shares. The fund is trading at around 23 times next 12 months' earnings, which is pretty reasonable given the rate at which earnings have been growing and are expected to continue growing over the next few quarters.

So I decided to buy shares of the Vanguard Information Technology ETF and overweight tech 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 pull back significantly once those growth rates slow or begin to peak. I don't think that's going to happen yet, though. And I'd be more concerned if the forward P/E is north of 30. But current valuations make me feel I'm not reaching here, given the fundamental backdrop.

Time will tell if this proves to be a smart move. So far, it's worked out well. I hope it will continue.

David Dierking has 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 a disclosure policy.