Key Points
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The Vanguard Information Technology ETF has a 10-year average annual return of 25%. It’s also returned 15% per year since its inception.
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Another strong multi-decade run would likely involve AI productivity gains for several years and above-average S&P 500 earnings growth rates.
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Here’s how much an investment in VGT could turn into in multiple scenarios.
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The Vanguard Information Technology ETF (NYSEMKT: VGT) has delivered an average annual return of roughly 25% over the past decade and around 15% per year since it launched in 2004.
Considering the S&P 500 has averaged about 10% per year over its history, these returns are nothing short of fantastic.
It also shouldn’t be assumed that they’ll continue indefinitely. It’s possible that the artificial intelligence (AI) revolution and the earnings growth that comes with it could continue for years. Let’s start by using a return figure close to the long-term market averages. Here’s how much $5,000 could turn into in 20 years.
- A more conservative 10% annual return: This isn’t a bad return, just one closer to the long-term market average. $5,000 turns into $33,600.
- A more historically normal 12% annual return: This is more in line with the long-term historical premium that tech has returned above the broader market. $5,000 turns into $48,200.
- A more aggressive 15% annual return: AI productivity gains continue over the next decade, or a new technology emerges. $5,000 turns into $81,800.
For the Vanguard Information Technology ETF bullish case to come true, the tech sector needs a couple of catalysts.
First, the artificial intelligence boom likely needs to continue for years. The hundreds of billions of dollars being invested in AI need to deliver a strong return on investment (ROI), and developers must continue to find ways to deliver meaningful long-term productivity and efficiency gains.
Second, the economy likely needs to avoid a major bear market. AI could very well result in a spike in unemployment that cripples growth. Overspending on AI without an appropriate ROI could reverse the strong earnings growth trend. Government debt could continue spiraling higher and limit the ability to solve every problem with a liquidity injection.
There’s a lot that could happen in the next 20 years, but it’s safe to say that the tech sector will be at the forefront of it.
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David Dierking has positions in Vanguard Information Technology ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
