Investing in the stock market can help build life-changing wealth, and exchange-traded funds (ETFs) are a fantastic way to invest with minimal effort.
Each ETF contains dozens or even hundreds of stocks, all bundled together into a single investment. Some funds, such as S&P 500 ETFs, track the broader market, while others follow particular sectors or other niche categories of stocks.
When you invest in just one ETF, you're gaining exposure to many stocks at once. This significantly reduces your risk compared to buying just one or two stocks, and it's far easier (and more affordable) to build a well-diversified portfolio.
While there are countless ETFs to choose from, there's one powerhouse Vanguard ETF that could take you to $1 million while barely lifting a finger.
Balancing risk and reward
The Vanguard Growth ETF (VUG 0.13%) can be an exceptional investment for those looking to supercharge their savings while still limiting risk.
Growth ETFs, in general, are designed to beat the market. The Vanguard Growth ETF contains 208 stocks with the potential for above-average growth, and while these stocks span roughly a dozen industries, around 56% of the fund is allocated to stocks in the tech sector.
The downside to growth ETFs is that they tend to carry more risk than broad-market funds, like S&P 500 ETFs. Growth stocks are often more volatile than their more established counterparts, and while they could experience higher-than-average returns, there are no guarantees they'll actually beat the market.
VUG, in particular, aims to mitigate some of that risk with its mix of blue chip stocks and smaller growth stocks. The fund's top 10 holdings make up around half of its total composition, and these stocks are from juggernaut companies like Apple, Amazon, and Microsoft. Although these companies still experience volatility, they're far more likely to see long-term growth.
The rest of the fund, then, is made up of nearly 200 smaller stocks that have the potential for explosive growth. These stocks are riskier than the top 10 behemoths, but if any of them turn into superstar performers, you could see substantial returns.
Reaching $1 million or more
Compared to broad-market funds, growth ETFs' returns can be more unpredictable. Again, growth stocks are often more volatile, so while they may significantly outperform the market during strong economic times, they're also generally hit hard during downturns.
Over the past 10 years, the Vanguard Growth ETF has earned an average rate of return of just over 15% per year -- which is substantially higher than the market's historic average of 10% per year. Whether it will be able to sustain those returns in the future is anyone's guess, so to play it safe, let's assume there's a chance your investment could earn lower returns going forward.
Say you're investing $200 per month in this ETF. Here's approximately how much you could earn over time depending on whether you're earning a 10%, 12%, or 15% average annual return.
| Number of Years | Total Portfolio Value: 10% Avg. Annual Return | Total Portfolio Value: 12% Avg. Annual Return | Total Portfolio Value: 15% Avg. Annual Return |
|---|---|---|---|
| 20 | $137,000 | $173,000 | $246,000 |
| 25 | $236,000 | $320,000 | $511,000 |
| 30 | $395,000 | $579,000 | $1,043,000 |
| 35 | $650,000 | $1,036,000 | $2,115,000 |
Data source: Author's calculations via investor.gov.
To reach $1 million, you'll need to invest consistently for 35 years while earning 12% average annual returns. Or if this ETF manages to earn 15% average annual returns over the long term, you may be able to get there within 30 years.
Boosting your monthly contributions can also help you earn more, or you can simply give your money more time to grow. By getting started investing as soon as possible, it will be easier to generate a substantial amount of money.
Growth ETFs tend to be riskier than broad-market funds, so they won't be right for everyone. But if you're willing to take on higher levels of risk for the chance at potentially lucrative earnings over time, the Vanguard Growth ETF could be a fantastic addition to your portfolio.
