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This ETF Could Help Grow Any Retirement Account

By Robin Hartill, CFP® - Dec 20, 2020 at 7:24AM

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Just sit back and watch that nest egg soar.

When you're building a retirement portfolio, exchange-traded funds (ETFs) are the perfect place to start. You get an instantly diversified portfolio, plus you can buy and sell them the same way you would a regular stock.

Investing across the stock market using an S&P 500 index fund or a total stock market fund is a great way to invest, whether you're just getting started or you're approaching retirement. But if you have a couple decades or more until your golden years, you can afford to focus more of your portfolio on growth stocks. One great option if you're willing to take on more risk to earn greater returns is the Vanguard Growth Index Fund ETF ( VUG -1.46% ).

A young man holds cash hundred-dollar bills in front of his face.

Image source: Getty Images.

Why invest in Vanguard's Growth ETF?

Vanguard's Growth Index Fund ETF has a solid track record of outperforming the S&P 500 over the past 10 years. As of Dec. 17, 2020, it had delivered 10-year returns of 309.3%. By comparison, the Vanguard S&P 500 ETF ( VOO -0.65% ), which tracks the S&P 500 index, earned 197.3% over the same 10-year period.

VOO Chart

Data source: YCharts

The Vanguard Growth Index Fund ETF uses the CRSP U.S. Large Cap Growth Index as its benchmark. It's similar to the S&P 500's Growth Index, which consists of 289 growth stocks in the S&P 500, as measured by sales growth, ratio of earnings change to price, and momentum. The CRSP index uses the same factors to determine which stocks to track, but it tracks 259 stocks and isn't limited to S&P 500 companies. For example, the sixth-largest company included in the index as of Nov. 30 was Tesla ( TSLA -3.79% ), which wasn't added to the S&P 500 until Dec. 21.

One big advantage of Vanguard's growth fund is that it's cheap, with an expense ratio of just 0.04%. That means just 40 cents of a $1,000 investment would go toward investment fees.

The top 10 holdings

Not surprisingly, the Vanguard Growth Fund ETF's holdings are even more tech-heavy than what you'd get with a broad market S&P 500 fund. Technology stocks account for 45.3% of its holdings, followed by consumer discretionary (22.6%) and industrials (13.4%). The fund's top 10 holdings were as follows as of Nov. 30, 2020:

  1. Apple ( AAPL -0.25% )
  2. Microsoft ( MSFT -1.27% )
  3. Amazon ( AMZN -1.02% )
  4. Alphabet ( GOOG -0.76% ) ( GOOGL -0.75% )
  5. Facebook ( FB -1.21% )
  6. Tesla ( TSLA -3.79% )
  7. Visa ( V -1.07% )
  8. NVIDIA ( NVDA -4.38% )
  9. Mastercard ( MA -0.87% )
  10. Home Depot ( HD 0.55% )

Should you invest in Vanguard's Growth ETF?

On Nov. 30 of this year, a hypothetical $10,000 investment made 10 years earlier would now be worth $47,335. As with any growth fund, the downside is that it's a more volatile option compared to investing across the stock market. Investors nearing retirement should consider a lower-risk fund. It also isn't a great option if your portfolio is already heavily concentrated in the technology sector.

Otherwise, Vanguard's Growth ETF is a great way to supercharge your retirement if you want minimal investment costs and you've got time on your side. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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