Investing has long been a game of risk-reward trade-offs. Lower-risk investments tend to provide more stability, but they typically provide lower returns as well. Investments with higher risk typically present a chance for higher returns, but not every investor can stomach the volatility that can come with them.
Luckily, there's an exchange-traded fund (ETF) that can be the best of both worlds: the Vanguard Growth ETF (VUG 1.82%). The Vanguard Growth ETF focuses on large-cap growth stocks. "Large-cap" and "growth" may not seem like they go hand in hand, but plenty of larger companies fit the description of a growth stock.
The Vanguard Growth ETF can be a key piece in investors' portfolios in 2024 and beyond.
Stability with an emphasis on growth
The larger size of the Vanguard Growth ETF's holdings (the median market cap is $763 billion) helps provide a bit of stability, but the focus on growth means there's an opportunity for market-beating returns. It contains 221 companies from the following sectors:
- Basic materials: 1.4%
- Consumer discretionary: 20.9%
- Consumer staples: 0.7%
- Energy: 1.4%
- Financials: 2.5%
- Healthcare: 7.9%
- Industrials: 8.8%
- Real estate: 1.8%
- Technology: 53.4%
- Telecommunications: 1%
- Utilities: 0.2%
Since many large-cap growth stocks are technology companies, the ETF is skewed that way, but that's proven to be a good thing. Its top five holdings (almost 40% of the fund) -- Apple, Microsoft, Amazon, Nvidia, and Alphabet -- have had outstanding returns recently.
The Vanguard Growth ETF can be a wealth-builder
Since its January 2004 inception, the Vanguard Growth ETF has increased around 513% -- around 200% higher than the S&P 500's returns over that time span. In the past 10 years, it has averaged around 13.8% annual returns. Assuming that rate continues, here's roughly how much $500 monthly investments could grow over different years:
| Years Invested | Investment Value |
|---|---|
| 10 | $114,900 |
| 15 | $258,800 |
| 20 | $533,400 |
| 25 | $1.05 million |
| 30 | $2.05 million |
Data source: Author calculations. Investment values rounded to the nearest hundred.
Of course, there's no way to predict what'll happen in the future, and past performances don't guarantee future performances, but even continuing to slightly outpace the market average could lead to significant gains for investors.
By consistently investing in the ETF over time, investors put themselves in a position to take full advantage of compound earnings.
Don't lose sight of the importance of diversification
Despite the Vanguard Growth ETF's benefits and performance, it shouldn't consume your portfolio. It can play a key role in your investment strategy, but its concentration of technology companies can be a double-edged sword if the sector goes through a slump (like it did in 2022).
There's a reason diversification is a key pillar of investing: It helps reduce risk. You don't want to lose sight of that. If you want the Vanguard Growth ETF to be the foundation of your portfolio, a good move is to complement it with other sector-specific ETFs that can make up places where it lacks.
As a key portfolio piece, the Vanguard Growth ETF has shown it can be a great investment. With many of the companies leading the way for the ETF on the earlier ends of emerging technological innovations, it should continue to be that way for the foreseeable future.
