Sometimes it pays to sound like a broken record.
For several years now, I’ve been telling investors – over and over again – that if you want to transform your net worth… if you want to secure a wealthy retirement… you absolutely have to be in high tech and the life sciences.
Like we always say, the road to wealth is paved by tech…
I’m bringing this up with you today – because I can prove it.
Yesterday marked the eighth anniversary of the bull market, the second longest on record.
During this period, the S&P 500 rose roughly 207%, turning every $10,000 into $30,700. That sounds great.
Until you compare it to tech…
The tech-heavy Nasdaq Composite did nearly 50% better. From March 9, 2009, through yesterday’s close, it had gained nearly 308% – turning every $10,000 invested into $40,800.
You might think this is over.
However, over the last few days, we’ve gotten two pieces of evidence that tell me this market still has life.
We’ll talk about those in today’s report.
Better yet, I’ll reveal three of my favorite cost-effective but profitable ways to play this tech boom.
The Evidence Mounts
If you’re one of those investors wondering if this “generational” bull market is about to die of old age, I don’t blame you.
After all, this one is three years longer than the average bull run.
It now ranks as the second-longest bull market on record, after the rally that ran from Oct. 11, 1990, through March 24, 2000.
While that’s quite a long time to go without a break for a bear market – i.e., a 20% decline – there’s no rule that says a bull market must come with an expiration date.
This isn’t a jug of milk or a pound of hamburger meat we’re talking about here…
We generally see a bear market when we enter a recession – and no economist I know of expects one of those any time soon.
Even better: Our economy is actually gaining steam.
President Donald Trump wants to grow the economy at a 3.5% yearly rate, or nearly 46% faster than the average 2.4% we’ve had over the past eight years.
Plus, Congress is expected to take up tax cuts later this year. Doing so would give businesses extra money to hire more workers and consumers extra disposable income.
That, though, is the future.
Here’s the present – two pieces of evidence that tell me this bull market has legs…
- A very strong jobs report: Two days ago, we got word that U.S. private-sector jobs grew by 298,000 last month, according to data from payroll services firm Automatic Data Processing Inc. and forecasting firm Moody’s Analytics. That was 58% better than Wall Street had expected.
- Retail investors: That may sound counterintuitive, because at market tops we often see people who were late to the party getting gripped by greed and making risky plays. We’re not seeing it this time around. In fact, it’s just the opposite. Instead of taking on buckets of risk, Main Street investors are moving heavily into exchange-traded funds. ETFs trade like stocks but are funds that hold multiple equities. They can be broad as an index but tend to focus on discrete sectors, like chips or software. The Wall Street Journal reports that investors have poured $124 billion into ETFs in 2017. That makes this the most aggressive beginning of a year since ETF investing got started 24 years ago.
I’m sure many of us are involved in this huge trend. In fact, we may have helped get this thing started.
So let’s again look at my favorite three favorite funds of the moment – our 2017 Tech Wealth Gems – and my strategy for screening them and any other ETFs you might be investigating…
Three Ways We’re Ahead of This Crowd
Tech Wealth Gem No. 1
The iShares North American Tech ETF (NYSE Arca: IGM) covers the big leaders in tech. Apple Inc. (Nasdaq: AAPL), Microsoft Corp. (Nasdaq: MSFT), Amazon.com Inc. (Nasdaq: AMZN), and Facebook Inc. (Nasdaq: FB) anchor this fund, making up 30% of its portfolio. IGM has a great track record. It rose 16.6% in 2016, and over the past five years it has clocked 17.4% yearly gains. Plus, it’s up 8.3% since I brought it to you back on Jan. 6. IGM trades at roughly $136.50, with a 0.48% expense ratio.
Tech Wealth Gem No. 2
The best proxy for small caps is the iShares Russell 2000 ETF (NYSE Arca: IWM), which seeks to reflect the Russell 2000 index of small-cap firms. IWM holds such notable tech stocks as chip firms Advanced Micro Devices Inc. (Nasdaq: AMD) and Microsemi Corp. (Nasdaq: MSCC) and software firm Aspen Technology Inc. (Nasdaq: AZPN). IWM trades at roughly $136, with a 0.2% fee for expenses.
Tech Wealth Gem No. 3
The First Trust Cloud Computing ETF (Nasdaq: SKYY) is after a massive market. According to Statista.com, cloud computing has grown at a 16% yearly clip in the past five years. And Gartner Group says that $111 billion in tech spending was earmarked for the cloud in 2016 – a number that will hit $216 billion by 2020. Its holdings include Amazon, NetApp Inc. (Nasdaq: NTAP), and Netflix.com Inc. (Nasdaq: NFLX). Trading at just $38, SKYY has a 0.6% expense ratio. Last year, the fund gained nearly 20%; it’s up 7.4% since we first looked at it earlier this year, and it’s averaged profits of 15.4% over the past five years.
Of course, if these three ETFs aren’t appealing and you want to do some looking on your own, you’ll want to protect yourself. And that’s why I’ve put together these three ETF Profit Screens…
Do They Pass These Tests?
ETF Profit Screen No. 1: Expense Ratio
ETFs have gained so much popularity because of their low overhead compared to mutual funds, some of which can have management fees of 5%.
For my money, I rarely buy an ETF with an expense ratio above 1% – and I prefer 0.5% or even lower.
If you’re considering two ETFs with similar ratings and performance, then choose the “cheaper” one. For instance, a semiconductor ETF with an expense ratio of 1% has double the overhead of one whose expense ratio is 0.5%.
ETF Profit Screen No. 2: Morningstar Rating
Founded in 1984, Morningstar is a leading provider of independent investment research. It covers roughly 525,000 stocks, mutual funds, and ETFs.
The firm assigns one to five stars to each of the investments it covers. I avoid ETFs with less than three stars because I believe the quality of the fund is more important than volume.
My broker automatically gives me the Morningstar rating for each ETF I screen. If your broker doesn’t, don’t worry. You can get it for free directly from Morningstar’s website.
ETF Profit Screen No. 3: Trend
Wall Street’s fickle nature means that certain sectors will be in or out of favor at any point in time. In other words, don’t buy an ETF in a sector that the sharks are circling.
That said, you should consider the long haul. You can find great bargains in sectors that are temporarily out of favor. You just have to have the confidence to stay with the trend through the ups and downs.
Of course, neither the “Trump rally” nor this bull market will last forever. And I’ll be back soon with some ways to make sure you profit no matter what happens.
In the meantime, enjoy this ride on the road to wealth.
See you soon.
— Michael Robinson
Source: Money Morning