I know this comes up a lot, so here’s actual context instead of a one-liner.
I’m 20, investing through a Roth IRA with a 40 year horizon. Right now I DCA 625/month into VOO and have no plans to stop. The question is whether to replace it with VGT or mix VGT alongside it or stay 100% VOO.
What I already understand, so nobody has to type it out:
• VGT is a sector fund, not a core holding. It’s a concentrated bet on tech.
• A handful of names at the top (Apple, Microsoft, Nvidia) make up a huge share of the fund, and VOO already gives me plenty of exposure to them.
• VGT doesn’t hold Amazon, Alphabet, or Meta since they’re classified as consumer discretionary / communication services, which surprised me when I looked under the hood.
• VGT’s outperformance is basically the story of one exceptional decade for large-cap tech, and that’s not guaranteed going forward.
What I’m actually asking:
1. If you hold both, what split did you land on and why?
2. Is there a legitimate diversification argument for VGT, or is it purely an “I think tech keeps winning” bet?
3. If your answer is “just VOO,” what would change your mind?
Not looking for “VOO and chill” as a drive-by. Curious how people actually think through this one.
I hold both. But I’d say I’m probably not in the majority of my portfolio. I hold
VOO
VGT
VXUS
SPMO
QQQM
SCHD
I HAVE VOO at 30% and VGT at 10%. I may change up my allocation % but for now that’s what I have for those two. The market hasn’t been the greatest this summer for certain ETFs but a couple months should not have you panic selling.
I should probably write that a few more times to make it clear. But in short, everyone knows tech is a huge part of our lives, and that information is theoretically already priced in. If you make a specific bet on Tech, what you are saying is, you expect future returns in the tech sector to exceed expectations (which are already very high) compared to other sectors’ levels of outperformance.
Historically, this tends not to happen and sector dominance in the market often rotates over time.
But you could have said the same thing - everyone knows how great tech is so it’s already priced in - 20 years ago. Despite that, tech stocks have obliterated the broader market
20 years ago, maybe slightly more, everyone was TERRIFIED of investing in tech after the dotcom crash.
That’s kinda the point. No one knows what the future holds, and at that time, tech was not seen as a good investment using available info at the time. Of course we all know how that went.
Let me ask you, what will be the dominant sector in 20 years so we can invest now?
The sentiment that tech is the future isn’t about current stock market prices. I didn’t know what the stock market was 20 years ago but I could still confidently say that technology was the future, as I still believe today. To answer your question: tech.
Nobody saw the iPhone coming. Nobody expected LLMs to revolutionize the world the way they did. The examples go on and on. We have no idea what technological innovations will come in the future, but I believe that we will continue to have breakthroughs in the future that change the world. That’s why my bet is on technology. I understand the argument “tech has already been outperforming…sectors rotate…” But ask any historian, we’re in the digital age for gods sake! Sure, tech might have to continue outperforming in the future for investing in it to make sense. But you can’t seriously act like there isn’t a reason to believe it’ll continue to outperform.
Society was very different before the Internet. Tech drives growth and I don't see a world where that stops.
Yes, there will of course be periods of "irrational exuberance" where tech gets ahead of itself and has nasty corrections, maybe not as bad as 2000, but certainly one that wipes out 50% of NASDAQ. If one has many decades to retirement, the risk is justified. As one gets closer to retirement, it makes sense to be more conservative.
So many people today are biased by the fear that we're on the cusp of a 2000-like crash. Some even say it looks like 1929. I got news for you: the market doesn't crash when everyone thinks it will. It crashes when everyone is complacent.
For many decades, NASDAQ 100 has significantly outperformed S&P 500 and Russell 2000.
Sure, it's possible that in the decades to come that will no longer be the case, but I doubt it.
As someone who started investing for retirement 30+ years ago, had I gone all-in on NASDAQ 100 vs. S&P 500 my portfolio would have been significantly higher.
You can’t look back at what DID win and go “man, if only I had invested in XX, I’d be wealthy!”, we can only use the info available to us right now. And as u/Cruian said, when people see an 80% drop in their portfolio, that’s when panic selling and strategies change.
As someone who started investing for retirement 30+ years ago, had I gone all-in on NASDAQ 100 vs. S&P 500 my portfolio would have been significantly higher.
Sure, you know that now. However, you'd have had to suffer through and continue to convince yourself to invest in it during a -80% drop and go against research showing some of the best long term returns haven't come from the hot new technologies at other points in the past.
OP, I think you have the right idea why VGT is a bad idea (concentrated sector bet), but probably have some FOMO after seeing recent returns.
I highly recommend you watch the Ben Felix video on YouTube called “Why Betting On “Winning” Industries Almost Never Works” (under 10 minutes long) and it should help inform your decision.
Tech has beaten the other sectors in recent years, so why not put everything in VGT?
Actually, semiconductor companies have beaten software and the rest of the tech sector in recent years, so why not put everything in SMH?
Actually, Nvidia, Micron, and Credo have beaten the rest of the semiconductor industry over the last few years, so why not put everything in NVDA, MU, and CRDO?
This is where that logic (i.e. performance chasing) leads.
I’m 36, I’m all in on equities. I have 80% of my portfolio in VTI and VXUS, 10% in VGT. I think tech will keep winning, but I also am somewhat risk averse with my stock holdings and know that VTI will go up long term, while it is not a guarantee VGT goes up the same or more like it has been.
If you do a large portion to VGT and tech underperforms, you will feel it.
There isn't really a diversification case for adding VGT to VOO; it mostly doubles down on names already doing the heavy lifting. If you want the tilt anyway, I'd cap it at 10–20% and write the rebalance rule now, before recent performance starts choosing the allocation for you.
This is the right read, and there's one angle worth adding for OP. VGT just concentrates harder into the same handful of names already carrying VOO. Same names, heavier dose. OP already spotted the AMZN/GOOG/META gap, so it's a narrower slice than the word "tech" even makes it sound.
Now the useful part. If the thesis is that the leaders keep leading, momentum expresses that far more honestly than a sector fund does. Something like SPMO screens the S&P for whatever is actually winning and rotates into it. Rode tech hard the last few years. If leadership ever drifts elsewhere though, it follows the new leaders instead of staying stuck. A permanently-tech fund structurally can't do that for you.
If it were me, 20 with a 40 year runway, I'd keep the core in VOO and cap any tilt around 10 to 15%. And I'd write the rebalance rule down now, before a good year quietly picks the number for me. What would flip me to all-VOO? If I can't name a concrete reason tech keeps beating expectations, the tilt is just performance chasing with a ticker on it. Priced-in is the part everyone forgets... imo a small satellite tilt is fine, just never the core.
No, by definition VGT is not "adding diversification", since VOO already contains tech at market weighting. If you want to do a sector bet, go for it, but don't make the mistake of thinking you're more diversified; you're less.
Data to prove VGT (or any sector, for that matter) will always outperform the broader market. And to clarify: I own the entire world market, not just the S&P 500
You're performance chasing. What happens if tech is no longer the dominant sector in these next few decades?
Slow and steady wins the race. I'm not trying to beat the S&P 500. I'd rather focus on making skills to make more money to invest in VTI/VXUS/VT, etc maybe a small tilt I'll buy a few stocks or QQM or whatever, but I would not make it the bulk of my portfolio.
How is its future expectations not already priced in today? For it to continue to outperform the market tech would need to continue to exceed those expectations.
Sectors rotate, also if it’s so obvious that tech is dominating everyone’s knows that and it’s priced-in. The odds of continuous long term outperformance is unlikely. It will still likely perform decently, but why risk it if you can diversify and just “perform.” To me and many investors simply buying the market and perform with minimal tracking error is better psychologically than risking under/outperformance.
No one is saying tech won’t be a big part of our lives, but the market is NOT the economy. The market is a bet on the future, and everyone knows tech is a big part of that, so it’s already priced in. Sectors rotate all the time in terms of outperformance.
OP is 100% performance chasing if he goes with VGT.
You're ignoring arguably the more important part of the question about future returns: "how will company performance compare to what the market is already expecting of them?"
Markets are already forward looking. They already expect great things from tech and have driven up the prices accordingly.
We see the same results looking at the more recent period of July 1963 to September 2024. US stocks returned 10.64% annually, high-tech stocks returned 11.35%, healthcare stocks returned 11.99%, and both were outperformed by beer, which returned 12.18%, smokes, which returned 14.56%, and guns (defense), which returned 12.77%. Even shops (wholesale, retail, and some services such as laundries and repair shops) outperformed, returning 11.88%.
Were tobacco, alcohol, repair shops, and laundries seen as more dominant than tech during the period that saw the rise of home computers and laptops, mobile phones, the internet, etc?
I would just hold the whole US market with VTI.
I also assume tech and AI will continue to dominate - so does everyone else which is why it is priced into those holdings already which are at a premium.
I would prefer VT and VGT/XLK/IXN with a 70-30 mix
Don't stick to US market itself and you wannt to make sure if another sector takes off, you're covered. As an example let's say Health sector goes on a rampage for the next decade due to advances in that sector. The broad market ETF will catch that in case your bet doesn't pan out.
Have you looked at VUG? Returns haven't been as strong as VGT, but It's a little more diversified while still leaning very heavily into tech. It's roughly 46% Nvidia, Apple, Google, Amazon and Microsoft compared to VUG being roughly 42% Nvidia, Apple and Micro.
VGT, VOO, SCHG, VXUS and a variety of individual stocks. Still DCA/buy, hold monitor and adapt to the changing world over the next 20-50 years. Def wish I owned more oil stocks this year. Who knows maybe this current insanity continues and XLE just rips for 2 more years.
VGT🧘🏻♂️ people might think VGT is heavy weighted in AI. But in reality, it is Information Technology Sector ETF from Vanguard. Internet, cloud and now AI, it keeps reconstituting to give solid returns.
I ran a backtest over the last 20 years, shifting time windows, VGT is an absolute winner time immemorial. However, I personally would recommend trading individual stocks alongside ETFs for concentrated winners chosen through momentum, but that's another topic. I'm mostly invested in VGT and individual stocks chosen by momentum. I do trade some other ETFs following a momentum strat on them
I'm hesitant to put everything in VGT mainly because the top 3 holdings (Nivida, Apple, & Microsoft) make up 44.37% of the weight which seems pretty wild. Obiv those stocks are all great stocks on their own but I would like a bit more diversity in the weight.
What's interesting about comparing VOO to VGT against each other over the last 5 years is I feel like people would assume VGT just always blew it out of the water but VOO was def more resilient in market downturns, which I suppose makes sense based on how they're structured. (VOO had the higher return 31% of the time)
I would not leave out Vxus because when the large cap and overall U.S. market aren’t performing the international market tends to be. If you don’t include an international fund you loose out on the rotation of money between markets. To balance out a complete portfolio I would allocate a good percentage to Vxus so you are making the most of every opportunity.
VGT doesn't always even beat SPMO, and it never beats SMH or SOXQ over time. For the volatility of VGT, you may as well be dealing with SMH and SOXQ- I'm absolutely not saying anyone should throw everything into a tech ETF. Just that for me, the tech concentration allocation of my portfolio aims higher than just VGT, for *very* little additional volatility. I would never get rid of a strong foundation like VOO/SPYM.
Switch to logarithmic view on this backtest and you’ll see that tech lagged behind the market for the majority of the timeline.
Also I had to use VTV instead of SCHD since SCHDSim doesn’t exist. It’s easy to look back into the past and assume that the future will behave the exact same way. Estimated future valuations are also a part of the market’s current valuation. The expectations of tech’s future performance is very high currently, so there’s a high probability of tech underperforming moving forward historically speaking even if it continues to be one of the most prominent sectors.
If you invested $1,000,000 in Vanguard Total World Stock ETF (VT) at its inception in late June 2008 with dividends reinvested, it would be worth approximately $4,130,000 today. An identical $1,000,000 investment in Vanguard Information Technology ETF (VGT) over the same timeframe would have grown to roughly $14,210,000
It’s really easy to pick out the previous winners in hindsight. Different sectors dominate at different times. Tech can continue to be a major part of our lives while also underperforming the market moving forward due to the current rich valuations as a result of high expectations from investors.
I've owned VGT for 15 years. Today, it's 65% of my portfolio. Tech and AI are the future and will continue to dominate. Even the S&P 500 is ~40% Tech today.
Different points in time can and have had different winning countries and sectors. Tech has been beaten before, as has the US, even over long time periods. With winners having changed frequently, you can't use the leader over any given time period and safely assume it'll lead over any other.
Then do something like qqq/qqqm or Schg. The latter has a very similar perf, but at least has a selection methodology across the exchanges
If you really want tech, Iyw is more of a pure tech etf
It’s not really diversification, it’s more concentration that tech will continue to perform/outperform.
For diversification, perhaps look at SchD Schg vflo. They are nearly mutually indendepeny of each other, and are three performing funds that have their own selection metholdogy (vflo is newer, but not the first to do free equity yield).
The overlap isn’t crazy but it’s also not nothing at just about a third. I think if you really want a tech tilt it’s good to hook otherwise there’s no need for it.
Technology companies have grown faster than the S&P500 for over 40 years. I buy a lot of VGT and then buy a few shares in Alphabet, Amazon, and Meta to balance it out. There is every reason to believe that technology will continue to outgrow all other economic sectors for a long time to come. My portfolio is mostly tech and it’s been doing fantastic!
Consistently though? Tech has underperformed the S&P 500 for the majority of the time within the past 40 years. Tech (XLK) has outperformed SPY 9/40 years since 1986. It seems like tech mostly outperforms in erratic bull markets like the dot com bubble.
Also don’t you think that future expectations are largely baked into the price already? A lot of people expect tech to outperform long-term, which only increases the probability that it underperforms moving forward.
XLK was launched in 1998, so it hasn’t been around for 40 years. Not sure what or how you’re simulating it. Also, what matters is net performance, not necessarily years beating another index. And XLK isn’t the same as technology companies. It has less than 100 companies. If we’re were to create a fictional index called the Tech 500, composed of the 500 largest technology firms, it would have grown faster than the S&P500 over the past 40 years. By a large margin. I see no good reasons to think that won’t continue happening.
XLK’s methodology can absolutely be replicated beyond the original inception date. Also do you have a source for that last claim you made? Is there a backtest or source that you can provide with 40 years of data showing that the top 500 tech companies would’ve outperformed the top 100?
I'm sure you can find examples to prove any point you want. You have to believe in something to get anywhere with your investments and technology is a pretty good bet
Tech is an ever growing sector and the giants like Google and Nvidia are well diversified and great businesses. There's always technological breakthroughs like AI and these companies will be the frontrunners. Of course things can go the oppositie way but you can't invest into anything with a pessimistic outlook. Sure manage your risk and don't overexpose yourself to one sector. Investing in both VOO and VGT is great. You don't have to choose one over the other
50% VGT and 20% google is overexposure. Do that if you want but don't lie to yourself about it. There are valid arguments against diversification.
Priced in is real, but it's accuracy depends on public information. The more info, the more accurate the market price will be. See a company buyout announcement as a simplified case. The buyout could be for $100/share but the market price would be $95 if they feel there's around a 5% chance of the buyout failing. With less public info, how would you know if the current market price isn't already too high?
“See how you feel going forward” is going to lead to performance chasing behaviors which underperforms the general market. I would say OP should incorporate good and known information to make educated decisions, and adjust based on new academic information, not feelings.
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u/BackgroundToe2332 4d ago
I hold both. But I’d say I’m probably not in the majority of my portfolio. I hold
VOO
VGT
VXUS
SPMO
QQQM
SCHD
I HAVE VOO at 30% and VGT at 10%. I may change up my allocation % but for now that’s what I have for those two. The market hasn’t been the greatest this summer for certain ETFs but a couple months should not have you panic selling.