A $100 Monthly Investment in VGT Could Grow Into This Over 20 Years

There are a lot of exchange-traded funds (ETFs) offered by numerous firms out there. Vanguard is one of the largest asset managers. And its Vanguard Information Technology ETF (NYSEMKT: VGT), which currently has $170 billion in total assets, is a popular choice among investors who are seeking exposure to this high-profile sector.

At first, you might think that it's a requirement to put up a significant amount of capital initially in order to generate meaningful wealth. This isn't the case, however. A steady approach can result in a winning outcome.

If history is any indication of what's to come, investors who allocate just $100 per month into this ETF over a 20-year time period will see that relatively small sum grow into a sizable figure. The power of compounding is a wonderful thing.

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Patience leads to a winning outcome

During a 20-year stretch, investors who buy $100 of the Vanguard Information Technology ETF in total are putting $24,000 to work over that two-decade period of time. These monthly purchases are part of a strategy known as dollar-cost averaging. It focuses on investing at regular intervals, regardless of what the market is doing or what valuations look like.

In the past 20 years, the Vanguard Information Technology ETF generated a total return of 2,300% (as of Sept. 11). This is a spectacular growth rate. The S&P 500 index produced a total return of 754% during the same time.

Clearly, it has been extremely lucrative for investors to bet on the rise of technology businesses, with the overall sector becoming a much larger part of the broader economy. Major secular trends that have propelled this ETF include the mobile and cloud computing revolutions. With the benefit of hindsight, putting money behind these areas looked like a no-brainer decision.

If we assume that the Vanguard Information Technology ETF puts up another 2,300% total return between now and September 2046, investors should have no complaints. A $100 monthly investment would end up ballooning to $174,000 in two decades. This would definitely outperform an equal contribution made to an S&P 500 ETF.

Know the bear and bull case

The Vanguard Information Technology ETF's historical returns have been unbelievable. There is no guarantee that the future will bring the same outcome. This is how markets work. Past results provide no indication of what could happen in the next decade or two, even though the momentum is difficult to overlook.

This uncertainty shouldn't prevent investors from thinking through the bear and bull cases. Understanding both sides of the aisle helps investors round out their knowledge. Additionally, this exercise can set the right expectations.

The Vanguard Information Technology ETF contains more than 300 different stocks today. But the three largest positions -- Nvidia, Apple, and Microsoft -- represent over 44% of the entire asset base. There is notable concentration.

On an industry-specific basis, this is also true. Semiconductor stocks make up 36% of the ETF. Technology hardware, storage, and more represent 20% of the holdings.

The bear case is that the artificial intelligence boom, which has been such a powerful driver of the Vanguard Information Technology ETF's performance recently, will lead to a bubble that bursts sooner rather than later. And this would mean that the companies in the middle of this trend are overvalued, and/or their consensus analyst earnings estimates are overstated. This is a concern a lot of investors have.

However, I think the bull case also holds weight. For long-term investors, it has never been a good idea to bet against technological advancements. Sure, certain businesses, products, and services can become overhyped at times, leading to inflated expectations. But there is really no reason to believe that technology isn't going to further permeate the global economy in the future.

The rational investor holds this view. Therefore, it's worth considering the Vanguard Information Technology ETF for your own portfolio.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.