Is the Technology Select Sector SPDR ETF a Millionaire Maker?

Most of us would like to become millionaires, and the stock market is arguably the best way of achieving that status over the long haul. But it can be hard to know which stocks to pick that will serve us best.

Many people focus on growth stocks, reasonably, but those can sometimes be overvalued — and some, like just about any stock, can implode. A solid strategy, then, for most of us, is to invest in a fund of growth stocks, which will spread our money across lots of them. A great one to consider is the Technology Select Sector SPDR ETF (XLK 0.29%).

Image source: Getty Images.

Meet the Technology Select Sector SPDR ETF

Launched in late 1998, the Technology Select Sector SPDR ETF is an exchange-traded fund (ETF) — a security that’s a lot like a mutual fund, but it trades like a stock. It’s focused, obviously, on the technology sector and recently held 69 different stocks. Those 69 stocks, together, make up close to a third of the value of the entire S&P 500 — because many technology stocks carry fat valuations these days. (Hello, Apple and Nvidia, with recent market values, respectively, of $3.5 trillion and 3.4 trillion.)

Here are the recent top holdings of the Technology Select Sector SPDR ETF:

Source: SSGA.com, as of Oct. 17, 2024.

It’s worth noting that while there are 69 different stocks in the ETF, more than 41% of its value is in just the top three stocks above. Still, if you’re confident in those stocks’ futures, that’s not necessarily a bad thing. And you will have exposure to 66 other tech stocks, some of which may well turn out to be the behemoths of tomorrow.

Is the Technology Select Sector SPDR ETF a Millionaire Maker?

The stock market offers no guaranteed returns, and much depends on how much you can sock away in the ETF and for how long, but this ETF (like plenty of others) is definitely capable of making many investors millionaires. In fact, it has probably already produced some millionaires.

A key to many investors’ success with the ETF is its very impressive performance in the past. Check out some average annual returns — compared to the SPDR S&P 500 ETF (NYSEMKT: SPY) S&P 500 index fund, which is no slouch, itself.

Source: Morningstar.com, as of Oct. 18, 2024.

It’s good to remember that the long-term annual average return of the S&P 500 is around 10% and that over your own investing period, it might average a higher or lower return. And the average returns from about 14% to 16%, above, are not to be expected regularly.

Similarly, the Technology Select Sector SPDR ETF may very well not deliver average annual gains of 19% to 24% over your investing period. No one can know just how it — or the market — will do.

But just to give you a sense of how you might become a millionaire in either ETF, check out the table below, which models growth at 10% and 15%:

Source: Calculations by author.

Clearly, the Technology Select Sector SPDR ETF can make someone a millionaire — and so can a simple S&P 500 index fund. Note that:

• It can take 20 years or less if you’re investing $10,000 annually in the technology ETF.
• It will take less time if you can invest more than $10,000 annually — and vice versa.
• Depending on your ETF’s actual growth over your investing period, it can also take more or less time to achieve millionaire status.
• With enough money invested and enough time, you might become a multimillionaire.

So consider this ETF — or other terrific ETFs — for your portfolio if you’re aiming to grow its value robustly. Remember, too, to not put too many eggs in one basket. This ETF probably shouldn’t be your only stock investment. The good old S&P 500 index fund is another solid choice. It will grow more slowly, but it can make you a millionaire, too.