February and March have been a reminder for many that the stock market goes in more than one direction. After a two-year run with barely a hiccup, the S&P 500 Index "corrected," a period when the index drops by at least 10%. Here's how that looked as measured by the SPDR S&P 500 ETF, which tracks the 500 stocks in the S&P 500 Index.
The roller coaster has been tough for many investors, but for those invested in the leading edge of the economy, the emotional ride has been a little easier to handle.
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A way to beat the market
Investing in fast-growing businesses can be a winning strategy, and there's no better place to start than the technology industry. Technology has become the fastest-growing segment of the economy, and according to the U.S. Bureau of Labor Statistics, about a quarter of economic output and 5% of the American workforce now comes from tech.
That strong growth has equated to market outperformance. This has been on display in grand fashion during the last two months. While technology stocks fell with the overall market -- illustrated here with the Vanguard Information Technology ETF (NYSEMKT: VGT) and iShares PHLX Semiconductor ETF (NASDAQ: SOXX) -- they rebounded much quicker and are still touting gains for the year, while the S&P 500 is struggling to make up lost ground. Exchange-traded funds (ETFs) contain shares of many stocks and allow investors to easily get a range of holdings in one security.
Why the market-beating returns? Technology has become more than a small niche in the U.S. economy. It has invaded every other industry -- from manufacturing to healthcare to finance -- and is an integral part of everyday life. As a result, sales and profitability have been growing above average. That faster growth than the average company means those stocks grow faster.
Picking individual winners in tech can be tricky and risky, but you can still take advantage of growth in the industry through an exchange-traded fund (ETF) like the ones mentioned. Vanguard's Information Technology fund is well-diversified across the whole IT industry with over 350 stocks, while the iShares PHLX Semiconductor ETF focuses more specifically on semiconductors and consists of 30 stocks.
A word of caution
Investing in high-growth companies is not for everyone. They can often be volatile and drop more than the overall market at times. That has been the case especially with semiconductor stocks, which can undergo cycles of growth and contraction because of changes in demand.
However, over the long term, tech is beating the broader S&P 500. That underscores the importance of technology needing to be at the core of every investor's portfolio. It has become the driving force in the U.S. economy and is leading to changes across businesses of all types. All signs point to that trend continuing for many years, and that could equate to growth that helps your portfolio rebound better from stock market turbulence.
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Nicholas Rossolillo has no position in any of the stocks mentioned. The Motley Fool is short shares of SPDR S&P 500 and has the following options: short January 2019 $285 calls on SPDR S&P 500 and long January 2019 $255 puts on SPDR S&P 500. The Motley Fool has a disclosure policy.