Please ensure Javascript is enabled for purposes of website accessibility

This ETF Could Help Grow Any Retirement Nest Egg

By Selena Maranjian - Feb 23, 2021 at 7:34AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This low-fee index fund has averaged annual gains of 16% over the past 10 years.

There are plenty of great exchange-traded funds (ETFs) out there that could help you grow a sizable nest egg for retirement. The Vanguard High Dividend Yield ETF (VYM 2.66%), for example, has a history of providing solid long-term growth plus dividend income, and was recently yielding about 3.2%. The Vanguard Total Stock Market ETF (VTI 3.23%) is a terrific low-fee index fund that will distribute your dollars across just about every publicly traded U.S. company -- more than 3,600 of them.

Here's another ETF that deserves strong consideration for your portfolio: The Vanguard Growth ETF (VUG 3.74%), which tracks the CRSP US Large Cap Growth Index.

A yellow road sign says retirement ahead.

Image source: Getty Images.

Meet the Vanguard Growth ETF

There are lots of reasons to love this ETF. Let's start with its performance:

ETF

5-year annual average growth rate

10-year annual average growth rate

Since inception

Vanguard Growth ETF 

21.6%

16.4%

11.2% (January 2004)

Vanguard Total Stock Market ETF 

16.7%

13.5%

8.2% (May 2001)

S&P 500

16%

13.4%

10% (January 1993)

Source: Vanguard.com and SSGA.com. 

Pretty good, right? It's easy to love average annual gains of 16% or 21% -- but one shouldn't count on them. Remember that the overall stock market has averaged gains close to 10% over long, multidecade periods, but over shorter time frames it can grow more slowly (or briskly). A fund that's managed by people skilled at picking investments that will grow more rapidly than the overall market can get you a long-term average gain topping that 10%, but that's far from guaranteed.

The Vanguard Growth ETF's portfolio -- like the index it is based on -- has a large-cap focus. The median market capitalization of its 250-plus holdings recently was about $236 billion. As of the end of January, it held about nearly 47% of its assets in technology stocks, 23% in consumer discretionary stocks, and 12.2% in industrials. Here's a peek at the ETF's recent top holdings, to give you an idea of how it's pursuing its growth objective:

Stock

Recent market capitalization

Percentage of VUG portfolio

Apple

$2.2 trillion

11.12%

Microsoft

$1.8 trillion

9.65%

Amazon.com 

$1.6 trillion

7.53%

Facebook

$745 billion

3.42%

Tesla

$750 billion

3.31%

Alphabet (Class A)

$1.4 trillion

3.02%

Alphabet (Class C)

$1.4 trillion

2.83%

Visa

$451 billion

1.74%

NVIDIA

$370 billion

1.68%

The Home Depot

$300 billion

1.61%

Source: Morningstar.com. 

Low fees and a steady portfolio

Another thing to love about the Vanguard Growth ETF is its low annual fee of 0.04%. Comparable funds charge around 1%, meaning that you'd pay about $100 if you had $10,000 invested in it. The Vanguard ETF would charge you $4. That might not seem like a big difference, but Vanguard points out that with an initial $10,000 investment growing at 9% over 10 years, the lower fee would save you $2,255.

The fund also sports a low turnover rate --  recently, it was 2.7%. This means that the fund's managers aren't shifting their holdings much: A 100% turnover rate would mean that the entire value of the fund had been traded over the past year -- and that would not only suggest a lack of conviction in the fund's holdings, but it could also generate more in trading fees and short-term capital gains (which usually carry higher tax rates). Index funds tend to have low turnover rates because their managers don't actively decide what to buy and sell and when -- instead, they just buy and hold whatever is in the index they're tracking, making adjustments when the index does.

What to do

If you're now interested in this Vanguard ETF, you'll next need to decide about how to time your investment. You might invest all the funds you intend to dedicate to it in one single buy. But if you think the market is headed for a downturn, you might invest in installments --one-third of your total planned investment now, another third in a month or two, and the last third after that.

Another good approach with any investment is simply to dollar-cost average -- investing the same dollar amount regularly, over time. That way you'll get more shares when the price is low and fewer when the price is high, and over time, you'll be accumulating lots of shares.

Whatever you do, make sure you're planning -- and investing -- for your retirement.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Vanguard Index Funds - Vanguard Growth ETF Stock Quote
Vanguard Index Funds - Vanguard Growth ETF
VUG
$235.25 (3.74%) $8.49
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
META
$170.16 (7.19%) $11.41
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$267.70 (3.42%) $8.84
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$2,359.50 (5.11%) $114.66
Apple Inc. Stock Quote
Apple Inc.
AAPL
$141.66 (2.45%) $3.39
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$737.12 (4.53%) $31.91
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$116.46 (3.58%) $4.02
Visa Inc. Stock Quote
Visa Inc.
V
$205.51 (4.51%) $8.87
NVIDIA Corporation Stock Quote
NVIDIA Corporation
NVDA
$171.26 (5.55%) $9.01
The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
HD
$283.00 (2.75%) $7.58
Vanguard Index Funds - Vanguard Total Stock Market ETF Stock Quote
Vanguard Index Funds - Vanguard Total Stock Market ETF
VTI
$195.19 (3.23%) $6.11
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$2,370.76 (5.20%) $117.07
Vanguard Whitehall Funds - Vanguard High Dividend Yield ETF Stock Quote
Vanguard Whitehall Funds - Vanguard High Dividend Yield ETF
VYM
$103.31 (2.66%) $2.68

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.