Apple and Microsoft Join Nvidia in the $4 Trillion Club. Here's How You Can Buy All 3 Growth Stocks for as Little as $1.

On market close on Oct. 29, Nvidia had a market cap of over $5 trillion, Microsoft was over $4 trillion, and Apple‘s market cap was $3.99 trillion after surpassing $4 trillion earlier in the session.

Investing in the three most valuable companies in the world for as little as $1 seems too good to be true. But in today’s era of low-cost exchange-traded funds (ETFs), it’s fairly straightforward.

Nvidia, Microsoft, and Apple make up a staggering 20.7% of the S&P 500 and an even higher percentage of the tech sector. Topping that, 43.6% of the Vanguard Information Technology ETF (VGT +2.50%) is invested in these three companies.

Vanguard offers dollar-based ETF investing for folks who have an account with Vanguard or a partner brokerage that offers the feature. Dollar-based investing allows users to buy fractional shares in Vanguard ETFs, which is easier for financial planning and those who use dollar-cost averaging as part of their strategy. So instead of having to buy one full share of the Vanguard Tech ETF for over $770, investors can choose the dollar amount they would like to put in the fund rather than using whole-share increments.

Here’s why a low-cost sector ETF like the Vanguard Information Technology ETF is a great choice for investors looking to buy industry-leading growth stocks.

Concentration over diversification

Investors may choose index funds and ETFs over individual stocks because they hold dozens, hundreds, or even thousands of companies, offering instant diversification. But the U.S. stock market has become increasingly concentrated because a handful of companies are driving the bulk of the gains.

For example, Nvidia, Microsoft, Apple, plus Alphabet, Amazon, Broadcom, Meta Platforms, Tesla, Oracle, and Netflix make up 40% of the S&P 500. So even at the index level, there’s less diversification than in past years when there wasn’t such a great divide between megacap tech and other companies.

The Vanguard Tech ETF takes that concentration a step further by betting big on a handful of companies. The top 10 holdings, which are Nvidia, Microsoft, Apple, Broadcom, Oracle, Palantir Technologies, Cisco Systems, AMD, IBM, and Salesforce, make up 57.6% of the ETF. So although the fund holds over 300 stocks, it’s really a small number of companies that are driving the performance.

Tech continues to outperform

Concentration can make a portfolio or ETF more volatile, but it can also lead to significant outperformance if allocated in winning companies. Over the last decade, the Vanguard Information Technology ETF has produced a 681% total return (including dividends) compared to 408% for the Nasdaq Composite and 287% for the S&P 500. In just the last three years, the ETF is up 165% compared to 136% for the Nasdaq Composite and 93% for the S&P 500. The Nasdaq has been outperforming the S&P 500 because of its emphasis on growth stocks, but the tech sector has been like growth on steroids.

The sector is a simple way to bet big on artificial intelligence (AI) through chipmakers like Nvidia, Broadcom, and AMD; software and hardware companies; and cloud infrastructure companies like Microsoft Azure, Oracle, and IBM.

It’s worth mentioning that the Vanguard Tech ETF doesn’t include Amazon and Tesla, which are in the consumer discretionary sector, or Alphabet, Meta Platforms, and Netflix from the communications sector. So investors looking to build a portfolio around megacap growth stocks across all sectors may prefer funds like the Vanguard Growth ETF or the Vanguard Mega Cap Growth ETF. Similar to the Vanguard Tech ETF, both of these funds are eligible for dollar-based investing using a Vanguard account or partner brokerage.

Quality companies, expensive valuations

With an expense ratio of 0.09%, or just 9 cents for every $100 invested, the Vanguard Information Technology ETF is a simple way to get exposure to top tech stocks. The tech sector is heavily benefiting from AI, both in terms of investor excitement and earnings.

In just a few years, Nvidia grew earnings from a few billion dollars to over $86 billion in trailing-12-month profit. For the tech sector to continue carrying the broader indexes to new heights, top companies like Nvidia, Microsoft, and Apple must continue delivering exceptional earnings growth.

With a price-to-earnings ratio (P/E) just over 40, the Vanguard Tech ETF trades at a steep premium to the Vanguard S&P 500 ETF (VOO +1.55%), which has a P/E under 29. The market as a whole is relatively expensive, which is why it’s more important than ever for investors to build portfolios around quality companies that can grow into their valuations over time.

By design, the Vanguard Tech ETF is heavily concentrated in the best of the tech sector, making it a good choice for long-term investors willing to endure a sector-specific sell-off.