Building wealth in the stock market can be tricky, as the investments you choose will make or break your strategy. Invest in the wrong places, and you could easily lose more than you gain.
If you're looking for a low-maintenance investment that requires little effort on your part, an exchange-traded fund (ETF) could be a good fit. Each ETF tracks a particular index, which means it includes all the stocks within the index and aims to mirror its performance.
By investing in just one share of a single ETF, then, you can invest in dozens or even hundreds of stocks at once. This can simplify investing, instantly build a diversified portfolio, and potentially help you make a lot of money over time.
If you have a couple hundred dollars per month to invest, these three ETFs could turn it into $395,000 or more. Here's how.
1. Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF (VOO 1.00%) is a powerhouse investment that's also one of the safest ETFs out there. It tracks the S&P 500 index, and it contains around 500 stocks from the largest and strongest companies in the U.S. -- from tech giants like Apple and Amazon to long-established brands like Coca-Cola and Procter & Gamble.
Perhaps the biggest advantage of an S&P 500 ETF is its exceptional track record. The index itself has existed for many decades, and it's seen some of the worst market crashes, recessions, and bear markets in history. Yet it's managed to recover from every single one of them.
In fact, research shows it's actually harder to lose money with this type of investment than it is to make money. Analysts at Crestmont Research examined the S&P 500's rolling 20-year total returns throughout history, and they found that every single 20-year period ended in positive total returns. In other words, if you'd invested in an S&P 500 ETF or index fund at any point in history and held it for 20 years, you'd have made money.
Historically, the market itself has earned an average annual return of around 10% per year, which means the annual ups and downs have averaged out to roughly 10% per year over decades. If you're investing $200 per month while earning a 10% average annual return, you'd have around $395,000 after 30 years.
While that's a long time to invest, keep in mind that this investment requires next to no effort. All the stocks are chosen for you, and you never need to decide when to buy or sell. Simply invest as much as you can afford each month, and the fund will do the rest for you.
2. Vanguard Growth ETF
The Vanguard Growth ETF (VUG 1.82%) tracks the CRSP US Large Cap Growth Index, and it contains 221 stocks with the potential for above-average growth.
Growth ETFs, in general, are designed to beat the market. They carry more risk than broad-market funds, such as S&P 500 ETFs, and they may experience more severe volatility in the short term. However, they also have the potential for higher earnings over time.
The Vanguard Growth ETF aims to mitigate some of that risk with its mix of blue chip and up-and-coming stocks. The top 10 holdings make up around half of the fund's total composition, and these include behemoth stocks like Apple, Microsoft, Nvidia, Tesla, and Visa.
The other half of the ETF is made up of smaller stocks with the potential for explosive growth. While these stocks are riskier than their blue chip counterparts, if any of them become superstar performers, you could see much higher-than-average returns.
While there are never any guarantees when it comes to the stock market, this ETF has managed to beat the market. Over the past 10 years, the Vanguard Growth ETF has earned an average annual return of roughly 14% per year. At that rate, if you were to invest $200 per month, you'd have around $856,000 after 30 years.
3. Invesco QQQ Trust
Invesco QQQ Trust (QQQ 1.54%) tracks the Nasdaq 100 Index, and it includes 101 stocks from the largest nonfinancial companies listed on the Nasdaq Stock Market.
This ETF is the highest risk of the three, partly because it contains the fewest stocks and therefore isn't as diversified. Compared to the other two ETFs, it's also more heavily focused on stocks in the tech sector. This limits its diversification further and could make it more volatile, as tech stocks often experience more extreme ups and downs.
However, it's also earned the highest returns of the three. Over the last 10 years, QQQ has earned an average rate of return of more than 17% per year. By investing $200 per month at that rate, you'd have around $1,554,000 after 30 years.
An important caveat for both this ETF and the Vanguard Growth ETF, though, is that these types of funds aren't necessarily as consistent as the S&P 500 ETF. The S&P 500 itself has a decades-long history of earning positive returns over time. Growth ETFs are more unpredictable, and there are no guarantees they will beat the market at all.
In other words, while they can earn higher-than-average returns, it's best to avoid placing too much weight on these types of investments alone. They can make a fantastic addition to your portfolio, but just double-check that the rest of your investments are well diversified to limit as much risk as possible.
The right investments can supercharge your portfolio, and ETFs make building wealth simpler and more accessible to many people. By considering your goals and risk tolerance, you can determine which investment is the best fit for your portfolio.
