Investing in the stock market isn't always easy, but it's especially challenging during periods of volatility.
Stock prices have plummeted over the past year, and it can be tough to differentiate the good investments from the bad in times like these. But if you invest in the right places, you could potentially see lucrative returns when the market inevitably recovers.
Exchange-traded funds (ETFs) can be a fantastic option to limit your risk while still maximizing your returns. And there's one ETF in particular that could help you build a portfolio worth hundreds of thousands of dollars with next-to-no effort: the Vanguard Growth ETF (VUG +0.35%).
How a growth ETF could maximize your earnings
A growth ETF is a fund that only includes stocks with the potential for above-average earnings. These companies are more likely to experience rapid growth, which also means they have a better chance of beating the market.
The Vanguard Growth ETF contains 247 stocks from multiple industries, primarily the technology and consumer discretionary sectors. A few of the largest holdings in the fund include Apple, Microsoft, and Amazon. In other words, by investing in this ETF, you'll have a stake in all of these stocks.
The biggest advantage of a growth ETF is the potential to see higher-than-average returns. Since its inception in 2004, the Vanguard Growth ETF has earned returns of over 341%, compared to the S&P 500's 248%.
That may not seem like much of a difference on the surface. But if you had invested $10,000 in this ETF, you'd have more than $44,000 today, compared to just under $35,000 with the S&P 500. Over decades, those higher returns can add up substantially.
How much can you earn with a growth ETF?
By investing consistently over decades, you could potentially earn hundreds of thousands of dollars or more with a growth ETF.
Over the past 10 years, the Vanguard Growth ETF has earned an average annual return of around 12.8%. Keep in mind that the past decade has been lucrative for the market, but this ETF has also been hit hard over the last year. So your long-term returns could be higher or lower, depending on how the market fares.
However, if you were earning average returns of around 12% per year (which is just over the S&P 500's historical average of around 10% per year), here's approximately how much you could earn over time by investing just $100 per month:
| Number of Years | Total Savings |
|---|---|
| 10 | $21,000 |
| 15 | $45,000 |
| 20 | $86,000 |
| 25 | $160,000 |
| 30 | $290,000 |
| 35 | $518,000 |
Data source: Author's calculations via Investor.gov.
To accumulate half a million dollars in savings, you'll need to invest consistently for roughly 35 years.
While that's a long time to wait, keep in mind that this ETF requires next-to-no effort on your part. ETFs, in general, are passive investments. You don't need to research individual stocks or make any difficult investing decisions. All you have to do is invest a little each month, then sit back and wait for your money to grow.
Risks to consider before you buy
This ETF won't be a good fit for everyone, so it's important to understand the risks before you invest.
Perhaps the biggest risk with a growth ETF is that it can be more volatile than other funds. High-growth stocks are often riskier than their more established counterparts, but they also tend to earn higher returns.
Those returns aren't guaranteed, though. And even if your ETF does beat the market over the long run, the short-term volatility can be tough to stomach. For example, while the S&P 500 has fallen by around 15% over the past 12 months, the Vanguard Growth ETF is down by more than 27% in that same time frame.
NYSEMKT: VUG
Key Data Points
If you're holding your investments for the long term, the short-term ups and downs aren't as concerning. But for risk-averse investors, this type of volatility can make it harder to sleep at night -- especially when the market is shaky.
The Vanguard Growth ETF can be a smart option for many investors, and it could help supercharge your savings. By weighing the advantages and disadvantages of this investment, it will be easier to decide whether it's the right fit for you.
