Building wealth in the stock market isn't always easy, but the right investments can take you from $0 to $1 million over time.
Not all investments will be the right fit for all investors. But if you're looking for a low-maintenance option that can help you make a lot of money with little effort, a growth ETF could be a smart choice.
An ETF is a basket of securities bundled together into a single investment, and a growth ETF, specifically, includes stocks with the potential for above-average earnings.
While all growth ETFs have pros and cons, there's one that could help limit your risk while maximizing your returns: the Vanguard Growth ETF (VUG 0.18%).
Why invest in the Vanguard Growth ETF?
The Vanguard Growth ETF contains 235 stocks from a mix of industries, though around half of the fund is made up of stocks in the tech sector.
One of the biggest advantages of this particular growth ETF is that it effectively balances risk and reward.
NYSEMKT: VUG
Key Data Points
The fund's top 10 holdings make up around half of the entire composition, and these are blue chip stocks from behemoth corporations -- including Amazon, Apple, NVIDIA, Visa, and Alphabet. The other half of the fund, then, is comprised of dozens of smaller stocks with the potential for explosive growth.
This mix of blue chip and up-and-coming stocks means this investment has the potential for significant earnings while still remaining relatively stable. While all growth ETFs will carry more risk than their broad-market counterparts (such as an S&P 500 ETF), this one is safer than many of the other options.
Reaching $1 million or more
First, it's important to note that there are never any guarantees when investing, and this is especially true with growth ETFs. Although this fund is designed to beat the market, it may not always achieve that goal. And in the short term, it can be more volatile than some other ETFs.
That said, over the past 10 years, the Vanguard Growth ETF has earned an average annual return of just under 15% per year -- higher than the market's historic average of around 10% per year.
To play it safe, though, let's assume this investment only earns a 12% average annual return over the long haul. Here's what it would take to reach $1 million, depending on how many years you consistently invest:
| Number of Years | Amount Invested per Month | Total Savings |
|---|---|---|
| 20 | $1,200 | $1.038 million |
| 25 | $650 | $1.040 million |
| 30 | $350 | $1.014 million |
| 35 | $200 | $1.036 million |
| 40 | $110 | $1.013 million |
Data source: Author's calculations via Investor.gov
The more time you have to let your money grow, the less you'll need to invest each month to reach $1 million or more. Get started early, and building long-term wealth will be almost effortless.
Two important downsides to consider
No investment is perfect, so it's also important to think about the potential disadvantages of this ETF before you buy.
For one, as with all ETFs, you cannot choose which stocks are included in the fund. When you buy one share of this ETF, you'll instantly own a stake in all 235 stocks within it. If there are certain companies you'd rather not buy (or if you simply want more control over your portfolio), investing in individual stocks may be a better approach.
Also, it may be a good idea to ensure you have a healthy mix of other investments in your portfolio in addition to this ETF. While this fund is lower-risk for a growth ETF, it's still heavily focused on stocks in the tech industry. Not only does that limit your diversification, but the tech sector tends to be especially volatile.
The right investment for you will depend on your goals, preferences, and risk tolerance. If you're looking for a hands-off investment and are willing to take on slightly more risk for the chance at earning above-average returns, the Vanguard Growth ETF could be a great fit for your portfolio.
