Investing in the stock market can often be daunting, but it's a fantastic way to generate long-term wealth while limiting risk. With the right investments, you could even build a portfolio worth hundreds of thousands of dollars or more with minimal effort on your part.
Exchange-traded funds (ETFs) are baskets of securities bundled together into a single investment. When you buy just one ETF, then, you're actually buying dozens or even hundreds of stocks at once. If you're looking for a low-maintenance investment that does most of the heavy lifting for you, an ETF can be a smart choice.
There are countless ETFs to choose from, and some are better investments than others. But there's one, in particular, that could be a good fit for those looking to maximize their earnings.
The right growth ETF for your portfolio
A growth ETF is a fund that contains stocks with the potential for above-average earnings. In theory, it should be able to beat the market over time and earn higher returns than, say, an S&P 500 ETF or other broad-market fund.
The trick, though, is to find a growth ETF that still effectively balances risk and reward -- and one fund that does that well is the Vanguard Growth ETF (VUG 1.34%).
The Vanguard Growth ETF contains 235 stocks from a variety of industries, though around half the stocks in the fund come from the tech sector. Where it really shines, however, is in its balance of blue chip stocks and up-and-coming companies.
Roughly half of the fund's overall composition is made up of the top 10 holdings, which include behemoth corporations like Apple, Nvidia, Amazon, and Visa. While these stocks may not experience explosive returns, they are generally stable companies likely to survive market volatility and see long-term growth.
The other half of the fund, then, is composed of smaller stocks from up-and-coming companies. These stocks carry more risk than their blue chip counterparts, but if any one of them skyrockets to success, you could potentially make a lot of money.
Earning hundreds of thousands of dollars
There are no guarantees with the stock market, and growth ETFs do carry more risk than their broad-market alternatives.
However, because they're designed to beat the market, you could potentially earn far more over time than you would with more conservative investments. If you're willing to take on more risk for the chance at substantially higher returns, this ETF may be a good fit for your portfolio.
NYSEMKT: VUG
Key Data Points
Over the last 10 years, the Vanguard Growth ETF has earned an average return of around 13.5% per year. To play it extra safe, though, let's assume your investment only earns an 11% average annual return over time -- just barely higher than the market's historic average of 10% per year.
Say you're investing $300 per month in this ETF. With an 11% average annual return, here's approximately how much you'd accumulate over time:
| Number of Years | Total Savings |
|---|---|
| 20 | $231,000 |
| 25 | $412,000 |
| 30 | $716,000 |
| 35 | $1,230,000 |
| 40 | $2,095,000 |
Data source: Author's calculations via Investor.gov
To reach $716,000 in total savings, you'll need to invest consistently for around 30 years. For context, if you were investing in a broad-market fund earning a 10% average return, you'd only have around $592,000 after 30 years, all other factors remaining the same. If your ETF earns even higher returns, you could stand to earn far more.
Time is your most valuable asset when investing, so it pays to start now. Even if you don't have decades to save or can't afford to invest hundreds of dollars per month, the earlier you get started, the easier it will be to generate substantial wealth.
