ETFs
Is the Global X Robotics & Artificial Intelligence ETF a maker of millions?
Watch the news and you will see story after story about artificial intelligence, or AI. This seems likely to change the world and, as expected, Wall Street is playing a big role in the AI push. This includes financial companies that offer investors ways to invest money in the space, like Global X Robotics and Artificial Intelligence ETF (NASDAQ:BOTZ).
Should you go into it hoping that AI will make you a millionaire? Here are some things to think about first.
Cisco Systems: An Important Warning
It may seem old today, but in the late 1990s, a new technology was set to revolutionize the world. It was called the Internet. In fact, the Internet changed the world, but many companies didn’t do much about it. And even some of the big names that remained in the sector didn’t turn out to be good investments.
What went wrong? The answer is that Wall Street hype doesn’t always translate into investment success. Emotions often cause investors to blindly and aggressively buy things in hopes of becoming a millionaire. This leads to investment bubbles that eventually burst. As the turn of the century approached and the Internet was new, it was called the “Internet bubble” and it burst in the early 2000s.
Cisco Systems (NASDAQ:CSCO) was one of the hot stocks when the bubble was forming, as shown in the chart below. And when the bubble burst, investors lost a lot of money. The stock still hasn’t returned to where it was at its peak more than two decades ago.
CSCO Chart
Get started with the Global X Robotics & Artificial Intelligence ETF
This example should be a big warning to investors chasing the current market darling. Nvidia (NASDAQ:NVDA). Sure, it might make you a millionaire, but if the AI bubble bursts like so many other bubbles in the past, you might end up holding the bag like many investors did with Cisco. A much better option would be to take a holistic approach through a exchange traded fund (ETF) such as the Global X Robotics & Artificial Intelligence ETF. Nvidia is the largest holding (around 13% of assets), but it is not the only holding in this diversified ETF.
In fact, the Global X Robotics & Artificial Intelligence ETF has around 40 additional stocks, all of which have notable exposure to the AI and robotics theme. And the portfolio is rebalanced regularly, taking profits from big winners and allocating that cash to other stocks in the portfolio. So even though Nvidia is doing exceptionally well today, pushing its weighting beyond the ETF’s high-end weighting target of 8%, it will eventually be brought back to that level. This helps reduce the risk of a stock being too big for performance.
The story continues
CSCO Chart
This is a large ETF, with $2.7 billion in assets. That said, the management fee is a bit high at 0.68%, which, if you want to be cynical, is due to the sponsor’s ability to profit from the popularity of the AI theme. However, to be fair, it will likely require additional effort to identify AI companies for the portfolio. But the key here is to keep the popularity of AI in mind when investing. You pursue a hot investing theme and hot themes eventually come to an end. That’s why it’s a good idea to invest diversified with an ETF like the Global X Robotics & Artificial Intelligence ETF. But it could also be a good reason to only put a small percentage of your net worth in the ETF.
Be careful with thematic ETFs like the Global X Robotics & Artificial Intelligence ETF
Could this ETF help you build a seven-figure portfolio? It could. But the risk/reward balance here leans heavily in favor of risk given that Wall Street expects AI to change the world and enrich investors along the way. Even if the technology changes everything, there’s no guarantee it will make money for investors now that Wall Street has pushed shares of AI stocks like Nvidia to huge heights. It’s probably best to think of this fund as part of a larger diversified portfolio that can hopefully help you become a millionaire over time, not overnight.
Should you invest $1,000 in the Global X Robotics & Artificial Intelligence ETF right now?
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Is the Global X Robotics & Artificial Intelligence ETF a maker of millions? was originally published by The Motley Fool