How to "Bake" a 61% Advantage into Your Investing

I must be throwing off a strong "dad vibe" these days. And that's got me thinking maybe my chance conversations with a number of young adults lately is a sign of the times.

As I've been going about my daily routines, I've run into a lot of young adults my daughters' age who want to get invested but have no clue how to do so. They have income, but they don't know where to start.

For instance, once, while skiing at the Kirkwood Mountain Resort near Lake Tahoe, I chatted with three young adults who jumped at the chance to get my advice about investing.

I told them about a surefire way to make the market work for them as though I were talking to my own daughters.

I'll share it with everyone today - this strategy is good for new investors and old pros, and it's particularly effective for folks who've been reluctant to jump in to such a volatile market.

I'll name a "starter" investment, of course - one I always recommend for young folks to get them on the right track - plus three other tech-centric ways to jumpstart your investing today.

This will get you into the markets, absolutely, but as you'll see in a minute, you'll enjoy a double-digit edge that will make other investors green with envy...

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I've Had a Lot of Chances to Perfect This Strategy

Coaching young and novice investors comes naturally to me. I talk regularly with my 20- and 23-year-old daughters - both of whom decided to become finance majors, by the way.

They were in their early teens 10 years ago, when I started talking to them about the importance of avoiding debt and putting their money to work in the markets.

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For a time, we even had investing contests to see which daughter could score the higher gains. (Of course, they had dad's help in selecting high-tech investments that could crush the market.)

I'm surprised how often that comes into play. In one span of just a few weeks, I've chatted with at least six young adults who had cash that was making them nervous.

They wanted to invest it but didn't know anyone they trusted enough to get them going. Polls show they are not alone.

A recent survey by the Merrill Edge Report revealed that 66% of millennials said they would be able rely on their savings accounts in 20 years.

This is why they really need my help.

See, these young folks would be lucky to earn more than 2% on a savings account or money market fund.

If they just got the stock market's average long-term gain of roughly 7% a year, they would be doing more than three times better.

But if they invested in the tech sector, they could see life-changing returns.

I'd Recommend Tech for Any Investor, Anytime

The S&P 500 is up more than 21% year to date. The tech sector, as tracked by the $23 billion SPDR Technology Select Sector ETF (NYSEArca: XLK), is up more than 34% year to date. That's more than 61% better than the rest of the stock market.

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But as impressive as those gains are, when I talk to young adults about investing their money wisely, my first goal is to avoid overwhelming them.

I just want to help them get off the ground with a simple, three-part strategy that anyone can follow.

Here's what that looks like:

  • Start as young as you can, and invest regularly, so that you average your dollar cost over the long haul. Oftentimes, you'll hear that referred to as "dollar cost averaging" or "averaging in."
  • When all else fails, park your cash in a basic S&P 500 exchange-traded fund like the iShares Core S&P Total US Stock Market ETF (NYSEArca: ITOT) so you at least get a nice average return.
  • After that, make sure you have exposure to tech, the greatest wealth machine ever created, and start with solid tech ETFs - I'll show you some in a few seconds.

Because No. 1 is pretty much self-evident, let's drill down and take a closer look at numbers two and three.

I recommend ITOT because it gives you instant diversification with a cost-effective ETF that has a core holding in leaders from high tech and the life sciences.

It also has a built-in mnemonic memory aid...

When I say, "Just remember, 'ITOT' you to invest your money wisely," they all say the same thing: "Got it, that's easy to remember."

But our ultimate goal as tech-centric investors is outperforming the market - consistently. That's where No. 3 comes into play...

I've identified three tech-related ETFs that give everyone from novice investors to risk-loving options traders a solid foundation.

Take a look at these three winners:

Tech ETF Wealth Builder No. 1: IGM

This is my go-to tech ETF. The iShares North American Tech ETF (NYSEArca: IGM) covers all the leaders in tech, a group that has been a big factor in the market's rally for nearly a decade now.

We're talking firms like Facebook Inc. (NASDAQ: FB), Apple Inc. (NASDAQ: AAPL), Microsoft Corp. (NASDAQ: MSFT), and Amazon.com Inc. (NASDAQ: AMZN), which make up around 30% of its portfolio.

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While many of the firms in the iShares fund have done a great job reaching into global markets, they all count on North America as their major source of strength. Given concerns about trade tensions, that's a great place to be.

And there's plenty of depth here as well.

Holding some 289 stocks, IGM trades at roughly $220 and has a 0.46% expense ratio. Over the past five years, it's returned 123%, more than double the S&P 500's 47% profits.

Tech ETF Wealth Builder No. 2: XSW

When it comes to racking up high profit margins, it's hard to beat the software sector with its steady stream of licensing revenue. Even better, many of these firms are moving to cloud-based business models that yield even higher earnings.

In other words, the SPDR S&P Software & Services ETF (NYSEArca: XSW) has a built-in one-two punch. With 158 stocks in its portfolio, XSW doesn't just cover the waterfront of software and the cloud.

It also includes firms involved in e-commerce, social networking, data processing, Internet software, big data, and information technology consulting and services.

Trading at roughly $92 a share, XSW has returned roughly 106% to investors over the past five years. That's about 126% better than the S&P 500 over the period.

Tech ETF Wealth Builder No. 3: IHI

Medical devices are on the front lines of healthcare innovation. And it's a field that covers everything from in-vitro diagnostics to remote heart monitoring to deep brain stimulation.

A lot of the innovation in this sector is taking place right here in the United States, which accounts for 40% of the global $156 billion medical device market, according to Select USA.

That's why I recommend the iShares U.S. Medical Devices ETF (NYSEArca: IHI) as a cost-effective way to play the whole field at once.

Over 60% of this portfolio is anchored by 10 of the world's most innovative device makers, such as Medtronic Plc. (NYSE: MDT), Abbott Laboratories (NYSE: ABT), and Boston Scientific Corp. (NYSE: BSX).

Trading at $242.15, the fund charges a 0.43% expense ratio and has the best returns of the three tech ETFs I'm recommending today. Over the past five years, it has yielded 126% profits, beating the S&P 500 by 168%.

So, as you can see, investing in tech ETFs can be highly lucrative. And it's a great place for investors to hone their chops. And of course, you're welcome to click here to learn how to get all my Nova-X Report tech sector research for yourself every week.

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About the Author

Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...

  • He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
  • He was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
  • As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.

This all means the entire world is constantly seeking Michael's insight.

In addition to being a regular guest and panelist on CNBC and Fox Business, he is also a Pulitzer Prize-nominated writer and reporter. His first book Overdrawn: The Bailout of American Savings warned people about the coming financial collapse - years before the word "bailout" became a household word.

Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.

And even with decades of experience, Michael believes there has never been a moment in time quite like this.

Right now, medical breakthroughs that once took years to develop are moving at a record speed. And that means we are going to see highly lucrative biotech investment opportunities come in fast and furious.

To help you navigate the historic opportunity in biotech, Michael launched the Bio-Tech Profit Alliance.

His other publications include: Strategic Tech Investor, The Nova-X Report, Bio-Technology Profit Alliance and Nexus-9 Network.

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