When we hear about a stock that has turned a $5,000 investment into millions, investors may think of betting everything on a single stock. Some of the stories of such achievements are true. However, there is no way to reliably predict such an outcome before the fact, and trying to bet everything on one name can often lead the investor to ruin.
Instead of trying to “bet it all,” investors can have a safe way to buy one stock and still come out ahead. While these stocks aren’t likely to turn a small investment into millions, they have a long history of delivering high returns in a growing industry and can deliver those results with significantly less risk.
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Again, investors should never put everything into one name, but if they want to do so, they should look to an exchange-traded fund (ETF). The only ways an ETF can fall to zero is through fraud or if all the shares in the fund become worthless. Both of these scenarios are highly unlikely.
Knowing this, ETFs, I think investors should consider VanEck Semiconductor ETF(NASDAQ: SMH).
As the name suggests, it invests in the top 26 semiconductor stocks. It is not surprising that her greatest control is Nvidiawhich represents more than 18% of the fund. Other major assets are Taiwan Semiconductor, Broadcom, AMDand Micron.
Together, these five stocks represent nearly 49% of the VanEck Foundation’s holdings. Admittedly, this is a higher level of risk than some investment experts would recommend. Still, it’s a safer move than putting 100% of your capital into a single stock.
As mentioned earlier, the VanEck fund has significantly fewer shares than the S&P 500 or Nasdaq-100. Despite this, it has averaged 31% pa over the past 10 years and 27% pa since the fund’s inception in 2011. Investors should also note that it is averagethat is, it includes years like 2022 when the ETF’s value declined.
This is very important because it has performed well above its 15% average annual return SPDR S&P 500 ETF Trust and 20% average annual profit Invesco QQQ Trust. in the last 10 years.
These returns also highlight one critical point in analyzing the average returns earned by fund managers. According to research by S&P Dow Jones Indices, only 12% of fund managers outperform the S&P 500.
Such results suggest that investors who expect market-beating returns are very much against it, assuming they are willing to invest the time to find the right stocks. Knowing this, most investors will likely earn higher returns with less effort by simply buying VanEck ETFs.
In addition, there is very little cost to investors to transfer these responsibilities to VanEck. Semiconductor ETFs charge their shareholders an expense ratio of 0.35%. This means that for every $10,000 a shareholder has in the fund, they pay VanEck $35 in management fees, which is an economical level given the returns over time.
While investors can technically invest their entire portfolio in a single stock, this is generally not recommended. However, if you need to invest this way, a great option is to put your capital in the VanEck Semiconductor ETF.
For one thing, the VanEck ETF links investors to 26 companies, not just one. In addition, it has significantly outperformed both the S&P 500 and the Nasdaq, benchmarks that most professional fund managers have struggled to beat.
Additionally, its 14 years of existence include downturns such as 2022, suggesting it can thrive during industry and market downturns.
Ultimately, because the VanEck ETF can deliver huge returns at a low cost while minimizing the investor’s risk, it’s a relatively safe way to take the ill-advised step of buying just one stock.
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Will Healy holds the position of Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
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