Investing in exchange traded funds (ETFs) can be a fantastic way to generate wealth with less effort. An ETF is a basket of securities that tracks a particular index, and by investing in a single stock in an ETF, you will instantly own a stake in all the stocks in that index.
Since each ETF can contain dozens or hundreds of stocks, they can make it easier to create a diversified portfolio. Rather than buying 20 to 30 separate stocks, you could get instant variety with a single ETF.
With the right fund, it’s even possible to beat the market over time with virtually no effort. While there are never any guarantees when it comes to the stock market, investing in this Vanguard ETF 10 years ago would have quadrupled your money today – and it’s not slowing down yet.
The right ETF to boost your savings
THE Vanguard Growth ETF (NYSEMKT:VUG) follows the CRSP US Large Cap Growth Index, and it contains 200 stocks with above-average growth potential. The median market cap of the fund’s stocks is $1.1 trillion, meaning most of the companies in this ETF are giant corporations.
The fund’s top five holdings represent more than 43% of the ETF’s total composition, and these stocks are industry heavyweights like Microsoft, Apple, Nvidia, AmazonAnd Alphabet. This can help reduce your risk, as larger companies are often more likely to recover from periods of market volatility.
That said, the Vanguard Growth ETF still packs a punch – and it has a history of beating the market. Over the past 10 years, it has earned an average rate of return of 14.89% per year. For context, the Vanguard S&P 500 ETF (which follows the S&P500 index) has generated an average annual return of 12.66% over the past 10 years, and the market itself has average returns of around 10% per year, historically.
If you had invested $5,000 in the Vanguard Growth ETF 10 years ago while earning an average annual return of 14.89%, you would have about $20,035 today – and that’s assuming you simply let your money rest without making additional contributions.
How much could you earn in the future?
It is impossible to predict how a stock or fund will perform in the future, and past performance is not always a guide to future returns.
In other words, there is no guarantee that the Vanguard Growth ETF will generate similar returns in the future. It may not even be able to beat the market, and that’s a risk you’ll have to take with any growth ETF. Although they are designed to generate above-average returns, they can be more volatile and carry more risk than general market funds like S&P 500 ETFs.
However, even if this fund only generates slightly above average returns, you could still make a lot of money. If you were to invest $200 per month, here’s approximately how it could add up depending on whether you earn 11%, 13%, or 15% average annual return.
Number of years | Total portfolio value: 10% on average. Annual return (historical market average) | Total portfolio value: 11% on average. Annual return | Total portfolio value: 13% on average. Annual return | Total portfolio value: 15% on average. Annual return |
|---|---|---|---|---|
20 | $137,000 | $154,000 | $194,000 | $246,000 |
25 | $236,000 | $275,000 | $373,000 | $511,000 |
30 | $395,000 | $478,000 | $704,000 | $1,043,000 |
Data source: Author’s calculations via invest.gov.
Again, even though this ETF has generated average annual returns of nearly 15% over the past decade, there is no guarantee that it will keep up with that performance. Before you buy, make sure you’re willing to take on the added risk associated with growth ETFs and do your best to control your expectations.
Is now the ideal time to buy?
The Vanguard Growth ETF has been hitting new all-time highs throughout 2024, with the most recent being in early June. Growth ETFs, in general, tend to thrive when the market is surging, often significantly outperforming major stock indexes like the S&P 500.
No one knows for sure how long this bull market will last, but it’s possible that stock prices will continue to rise. We’re currently just over 600 days into the bull market, and the average bull market since 1929 has lasted more than 1,000 days, according to investment firm Bespoke.
All bull markets are different, so that doesn’t necessarily mean we won’t see a downturn soon. But if this bull market follows a similar trajectory to history, we could still have several months, or even years, of continued growth on the horizon. If so, investing now could help you maximize your income in the long term.
ETFs can boost your portfolio with less effort, and the right fund might even help you beat the market. The Vanguard Growth ETF has a history of outperforming the market, and with enough time and consistency, you could potentially make hundreds of thousands of dollars or more.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Katie Brockman holds positions in Vanguard Index Funds-Vanguard Growth ETF and Vanguard S&P 500 ETF. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Microsoft, Nvidia, Vanguard Index Funds-Vanguard Growth ETF, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Mad Motley has a disclosure policy.
This Vanguard ETF Would Have Quadrupled Your Money Over the Past 10 Years — and It’s at an All-Time High was originally published by The Motley Fool
