One of the biggest misconceptions about investing is that you need a ton of money. That's not true at all. You can start with a fraction of a share and add to it when you can. Even $500 is more than enough, and it can grow to thousands of dollars if you pick a good investment and give it time.
For example, had you invested $500 into the Vanguard Growth ETF (VUG 1.82%) when it was created in 2004, you would have nearly $4,000 today. Now, imagine if you made that investment again and again over the years ...
In fact, if you have $500 to invest in the New Year, the Vanguard Growth ETF is still a great place to park your money.
Here are three reasons why.
1. It makes growth investing easy
Index funds can make investing simple for anyone who doesn't have the time or interest to follow a bunch of individual companies. These funds are built to mimic a stock market index. It could be the S&P 500, Nasdaq Composite, or in the case of the Vanguard Growth ETF, the CRSP US Large Cap Growth Index.
The Vanguard Growth ETF focuses on large growth stocks. There are 221 companies in the fund, carrying a median market cap of $763 billion. The fund touches on several industries, but technology is the largest. Approximately 53% of the fund is allocated to tech stocks with consumer discretionary stocks a runner-up at 21%.
Despite having over 200 holdings, the top 10 stocks represent over 54% of the fund. The top 10 includes the "Magnificent Seven" stocks plus Eli Lilly and Visa.
2. It has an excellent track record of performance
The Vanguard Growth ETF's tilt toward growth has driven great investment returns. The fund has outperformed the S&P 500 for two decades. That doesn't guarantee it will continue to do so, but it's a strong track record that investors can feel good about as they look to the future.
Data by YCharts.
Importantly, index funds aren't static. They will evolve as the indexes they follow change. That's the secret sauce that makes index funds so effective. If a remarkable company emerges, it will likely find its way into the relevant indexes, which constantly shift to ensure their holdings meet the required parameters. It's like portfolio management on autopilot.
3. It's generous to fund holders
If you went to a professional investment manager and told them you wanted market-beating returns, you'd likely balk at the fees they charge for their services. Ironically, most professionals don't beat the broad market over the long term.
When you invest in the Vanguard Growth ETF, you'll pay a tiny percentage to those who manage the fund. This fee, called the expense ratio, is only 0.04%. In other words, you'll pay just $0.20 on your initial $500 investment.
The fund also pays a dividend that yields 0.52% as of this writing, so the dividend more than covers the cost of investing in the fund. Feel free to reinvest the remainder of your dividends to buy more shares, further adding to your compounding returns.
When you look at the total package offered by the Vanguard Growth ETF, there's just so much to like. You get market-beating returns at almost zero cost and a dividend on top of it. Of course, index funds will be volatile at times, just like the stock market. Your best bet is to put that $500 to work and continually add to that investment when possible.
Over the long term, you might be surprised how much your investments grow.
