One of the very best allies an investor has is time in the market. The longer a time horizon you have to invest, the more time you have to put the incredible power of compounding to work. Obviously, the younger you are, the more time you'll have in the market. That's why it's imperative to start investing as soon as possible, starting with an employer-sponsored plan.
But you can also start to build your own portfolio outside of your company plan. You don't even need much money to get started, as you have more time to let your assets build.
A good option for new investors is an exchange-traded fund (ETF). ETFs are diversified baskets of stocks that include stocks in a given index or benchmark. Because you have such a long time horizon until retirement, your kids' college bills, or whatever else, you can afford to invest in aggressive growth ETFs, which have better long-term performance.
Here are two of the best-performing aggressive growth ETFs: The Vanguard Information Technology ETF (VGT -2.65%) and the Invesco QQQ (QQQ -2.07%).
Vanguard Information Technology ETF
This ETF has been one of the top performers since its inception on Jan. 26, 2004. As the name suggests, it invests in the technology sector, which has driven the markets over the past two decades. But unlike other technology funds, it draws from a much broader pool. It tracks the MSCI US Investable Market Index (IMI) Information Technology 25/50 Index -- which includes large-cap, mid-cap, and small-cap technology stocks, with some weight limits imposed.
Generally, these are companies that offer software and information technology services, as well as manufacturers and distributors of technology hardware and equipment. Overall, as of the most recent quarter, it held 367 stocks, with the heaviest weights in technology hardware (23.9%), systems software (21.7%), and semiconductors (14.8%).
The three largest holdings are Apple, Microsoft, and Nvidia. It does not include stocks like Amazon, Meta Platforms, and Alphabet, as they are classified as either retailers or communication services companies.
The fund's performance has been stellar over the years. It has returned 11.5% since inception through Oct. 31. Over the past year it is down 23.2%, but it has returned 16.3% on an annualized basis over the past five years and 18.4% on average over the past 10 years, through Oct. 31. And, as Vanguard is known for, it carries a small 0.10% expense ratio.
Invesco QQQ Trust ETF
The other ETF that has been one of the best performers since its debut on March 10, 1999 is the Invesco QQQ Trust, better known as the Invesco QQQ.
This fund simply tracks the Nasdaq 100 index, which is made up of the 100 largest non-financial companies on the Nasdaq stock market. So, it's a more concentrated portfolio than the Vanguard ETF, but it includes more than just technology companies.
While 49% of the portfolio is in information technology stocks, 17.1% is in consumer discretionary, 15.8% in communication services, 6.7% in consumer staples, 6.6% in healthcare, 3.4% in industrials, and 1.4% in utilities.
Its three largest holdings are Apple, Microsoft, and Amazon. It makes a good companion to the Vanguard Information Technology ETF because includes behemoths like Amazon, Alphabet, and Meta, as well as Tesla, among others.
Its performance has been equally as strong as the Vanguard Information Technology ETF's. Since inception, it has returned 8.3%, but that also includes the dot-com crash of the early 2000s. If you go back 20 years to Oct. 31, 2002, it has an annualized return of 12.9%.
Over the past year as of Oct. 31, it is down 27.5%. But over the past five years it has returned 13.6% on an annualized basis, and over the past 10 years it has an annual return of 16.8%, as of Oct. 31. Its expense ratio is slightly higher at 0.20%, but still below average for this type of fund.
Take advantage of time
As mentioned, the QQQ has been through the bear market of the early 2000s, while both of these funds have been through the market crash during the Great Recession, the pandemic crash, and obviously the current bear market. They have still posted excellent long-term returns. Going forward, they will probably be prone to equally volatile swings, but if you're in your 20s, you have a long time to ride them out.
Just as an example, if you're 25 and you invest just $1,000 in an ETF that averages a 10% annual return for the next 40 years, and contributed just $100 to that fund every month, you'd have $604,000 by the time you reached age 65. If you used the exact same inputs, but it was for only 30 years, you would have amassed about $225,000. That's the advantage of time.
