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 share of an ETF, you’ll instantly own a stake in all of the stocks within that index.
Because each ETF can contain dozens or hundreds of stocks, they can make it easier to build a diversified portfolio. Rather than buying 20 to 30 separate stocks, you could achieve instant variety with a single ETF.
With the right fund, it’s even possible to beat the market over time with next to 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 by today — and it’s not slowing down yet.
The right ETF to supercharge your savings
The Vanguard Growth ETF (NYSEMKT: VUG) tracks the CRSP US Large Cap Growth Index, and it contains 200 stocks with the potential for above-average growth. The median market cap of stocks within the fund is a whopping $1.1 trillion, meaning most of the companies in this ETF are behemoth corporations.
The top five holdings within the fund make up more than 43% of the ETF’s total composition, and these stocks are industry-leading juggernauts like Microsoft, Apple, Nvidia, Amazon, and 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’s earned an average rate of return of 14.89% per year. For context, the Vanguard S&P 500 ETF (which tracks the S&P 500 index) has earned an average annual return of 12.66% over the past 10 years, and the market itself has averaged returns of around 10% per year, historically.
If you had invested $5,000 in the Vanguard Growth ETF 10 years ago while earning a 14.89% average annual return, you’d have around $20,035 today — and that’s assuming you simply let your money sit without making any additional contributions.
How much could you earn going forward?
It’s impossible to say how any stock or fund will perform in the future, and past performance isn’t always indicative of future returns.
In other words, there are no guarantees that the Vanguard Growth ETF will earn similar returns going forward. There’s a chance it may not even be able to beat the market, and that’s a risk you’ll need to take with any growth ETF. While they’re designed to earn above-average returns, they can be more volatile and carry more risk than broad-market funds like S&P 500 ETFs.
However, even if this fund only earns slightly higher-than-average returns, you could still make a lot of money. If you were to invest $200 per month, here’s approximately how that could add up depending on whether you’re earning 11%, 13%, or 15% average annual returns.
Number of Years | Total Portfolio Value: 10% Avg. Annual Return (Market’s Historic Average) | Total Portfolio Value: 11% Avg. Annual Return | Total Portfolio Value: 13% Avg. Annual Return | Total Portfolio Value: 15% Avg. 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 investor.gov.
Again, although this ETF has earned close to 15% average annual returns over the last decade, there are no guarantees that it will keep up with that performance. Before you buy, be sure you’re willing to take on the additional risk that comes with growth ETFs, and do your best to keep your expectations in check.
Is now a smart time to buy?
The Vanguard Growth ETF has been reaching new all-time highs throughout 2024, its most recent in early June. Growth ETFs, in general, tend to thrive when the market is surging, often significantly outperforming major market indexes like the S&P 500.
Nobody knows for certain how long this bull market will last, but there’s a chance stock prices could have further to rise. We’re currently just over 600 days into a bull market, and the average bull market since 1929 has lasted over 1,000 days, according to investment firm Bespoke.
All bull markets are different, so this doesn’t necessarily mean we won’t see a downturn anytime soon. But if this bull market follows a similar path to those throughout history, we could have several more months — or even years — of continued growth on the horizon. If that’s the case, investing now could help maximize your long-term earnings.
ETFs can supercharge your portfolio with less effort, and the right fund could 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 earn 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 has positions in Vanguard Index Funds-Vanguard Growth ETF and Vanguard S&P 500 ETF. The Motley Fool has 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 Motley Fool has a disclosure policy.
This Vanguard ETF Would Have Quadrupled Your Money Over the Last 10 Years — and It’s at an All-Time High was originally published by The Motley Fool
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