On Friday, I promised you I’d be back today with “three hand-selected investments that you can buy now to lead you out of” the selloff we’ve been seeing over the past week or so.
Today, I’m keeping that promise.
But first a quick story.
At a cocktail party the other night, my friend Dave pulled me aside and sheepishly admitted that he has sat out one of the best generational bull markets for tech we’ve ever seen.
When it comes to building their net worth, a lot of folks are like Dave.
For him, it wasn’t for lack of interest. It’s just, in his late 50s, he’s been focused on getting his kids through private high school and college.
Now that funds are starting to free up, he wanted my opinion on how to get back into the market.
Like my mother-in-law often says, “No shame, no blame.”
So instead of chiding him, I told him the same thing I tell all new investors – and folks looking to get restarted after the selloff: You should start with exchange-traded funds (ETFs), and you should make sure you have solid exposure to technology and the life sciences.
While it may sound simple in theory, putting that into practice can be confusing. That’s because there are now some 2,000 ETFs comprising more than $4 trillion in assets under management.
With that in mind, today I’m going to share three of my favorite ETFs.
All three of them roughly doubled the market over the past year.
From Zero to Thousands in 25 Years
It’s easy to forget just how big a deal ETFs have become. Fact is, this very popular investment vehicle didn’t even exist until January 1993.
But the launch of the SPDR S&P 500 ETF (NYSE: SPY) was a game changer. It gave retail investors a way to play the benchmark S&P 500 with very little money to start with and an expense ratio approaching “free” – a mere 0.09%.
(A low expense ratio is one of the three ETF Profit Screens we use when searching for funds to buy.)
No wonder ETFs have become so popular, growing at nearly 19% a year. And there’s plenty of growth ahead. The sector could be worth $20 trillion by 2027 – up from $4.57 trillion at the end of 2017.
Here at Strategic Tech Investor, we are big believers in starting with ETFs – and then adding great stocks down the road.
Here’s the thing. With so many choices, it can be daunting for those who are just getting started.
With that in mind, I want to take a moment to show you three that I think are great for building wealth. Like I said, all nearly doubled the S&P’s return over the past year – and are poised to do that again over the next 365 days.
Take a look…
Post-Selloff Tech ETF Wealth Builder No. 1
The FANGs – and More
I’ve recommended the iShares North American Tech ETF (NYSE: IGM) several times over the past three years. That’s because IGM covers all the big leaders in tech, a group that has been a big factor in the market’s rally over the past year.
We’re talking firms like Facebook Inc. (Nasdaq: FB), Apple Inc. (Nasdaq: AAPL), Microsoft Corp. (Nasdaq: MSFT), and Amazon.com Inc. (Nasdaq: AMZN). Together, those four firms make up around 30% of IGM’s holdings.
These firms have used their size to outgun smaller rivals, and each has spread its swings into the fastest growth areas of tech. While many of the firms in IGM have done a great job reaching into global markets, they all count on North America as their major source of strength.
You can’t blame them. Since the 1960s, Silicon Valley has ushered in wave after wave of tech breakthroughs, from chips and personal computers to smartphones and cloud computing. It’s also one the main reasons why the United States boasts the world’s largest economy.
And there’s plenty breadth here as well. Holding some 295 stocks, IGM trades at roughly $210. It has a 0.46% expense ratio. Over the past year, it has gained 34.2%, more than doubling the return of the S&P.
Post-Selloff Tech ETF Wealth Builder No. 2
Aiming for the Sky – and Beyond
Once you have broad exposure to tech, it’s time to start shopping for very profitable niches. And you just can’t go wrong with the red-hot trend of cloud computing.
Throughout the world, hundreds of thousands of companies are seeing the value of migrating their key data and services away from local servers and on to the internet backbone, boosting access for both staff and clients to key programs and files.
Gartner Group says that $111 billion in tech spending was earmarked for the cloud in 2016, and that number could hit $216 billion by 2020. Statista adds that cloud computing has grown at a 16% yearly clip in the past five years.
So, the First Trust Cloud Computing ETF (NYSE: SKYY) is clearly after a massive market. This fund focuses on firms that are providing cloud-focused hardware and software, like Amazon and NetApp Inc. (Nasdaq: NTAP). But it also includes firms that use the cloud to deliver services, such as Netflix.com Inc. (Nasdaq: NFLX).
Trading at $56.50, it has a 0.60% expense ratio. Over the past year, the fund gained 37% and has averaged profits of 20% over the past five years.
Post-Selloff Tech ETF Wealth Builder No. 3
The Healthy Choice
Few sectors have been as greatly transformed by tech as the medical sector. Data sharing in the cloud, more efficient software, and major advances in drug research – none of it happens without Silicon Valley-style innovation. Yet it’s in medical devices that you’ll see some of the most profound changes taking place.
A lot of that innovation is taking place right here in the United States, which accounts for 40% of the global $156 billion medical device market, according to Select USA.
The best way to play this massive and growing corner of the economy is the iShares U.S. Medical Devices ETF (NYSE: IHI). Fully 60% of this portfolio is anchored by 10 of the world’s most innovative device makers, including Medtronic plc (NYSE: MDT), Abbott Laboratories (NYSE: ABT), and Boston Scientific Corp. (NYSE: BSX).
Trading at $226, the fund charges a 0.43% expense ratio and has delivered roughly 20% annual returns, both in the past year as well as over the past five years.
And when you consider that dozens of countries are home to rapidly aging populations, you can be sure that demand for medical devices will keep growing at a string clip.
In other words, these three funds make sure you have the tech bases covered. So you don’t need to choose a favorite.
Each captures a crucial corner of the tech market, from the biggest players to the smaller, nimbler players to the most dynamic growth sectors within tech.
Owning these funds is a great way to start an investing action plan with three foundational plays you can hold for years.
That means that folks like my friend Dave can hold them for years to come knowing they will help you steadily build their net worth.
Cheers and good investing,
Michael A. Robinson