For most investors, the goal should be to -- at a minimum -- having your stock portfolio keep up with the market average. When people refer to "the market," they generally mean the S&P 500, an index that tracks the largest 500 companies trading on the U.S. stock market.
Growth stocks have the potential to significantly outpace the market average, which is ideal. If you're looking for a growth stock that can beat the market, the Vanguard Growth ETF (VUG +1.52%) can do the trick. It might not be an individual company, but it's still equipped with market-beating potential that investors can't go wrong with.
NYSEMKT: VUG
Key Data Points
The best of both worlds
Growth stocks have the potential to produce great returns, but this doesn't come without some drawbacks. They are often more volatile and unpredictable than value or older dividend stocks. If you can keep a long-term mindset and not react too much to short-term price fluctuations, perfect; if you can't do that, individual growth stocks might not be the best option for your stress levels.
The Vanguard Growth ETF can provide the best of both worlds. Its focus is on growth, so it contains companies out to beat the market. However, it's still a 200-plus-stock ETF, so it's diversified enough to reduce some of the risks that come with individual companies. Even the greatest companies in the world slump occasionally, so it's nice to have hundreds of other companies to pull some of the weight.
Many growth stocks are tech companies, so the Vanguard Growth ETF is tech-heavy, but it still covers a bit of ground sector-wise. Here are the top-five sectors represented and how much they account for in the ETF:
- Technology: 54.8%
- Consumer discretionary: 20.4%
- Industrials: 8.8%
- Health care: 7.1%
- Financials: 2.6%
The Vanguard Growth ETF has top companies leading the charge
Compared to many other growth-focused ETFs, I appreciate that the Vanguard Growth ETF contains large-cap growth companies. Those might not seem like they go together, but a lot of larger companies fit the qualifications of a growth stock.
The Vanguard Growth ETF's top holdings include the "Magnificent Seven" stocks, which have been some of the highest-performing stocks on the market in recent years.
If you're out to beat the market, it helps to have well-established companies leading the way that have stood the test of time and have the resources to weather economic storms that come their way. Beating the market is cool; beating the market consistently is ideal. The Vanguard Growth ETF can help investors do the latter.
It's hard to argue against its historical results
Consistency is key in the stock market, and the Vanguard Growth ETF has been just that. In the past 10 years, it has averaged 12.8% annual returns, compared to the S&P 500's 9.9%.
Past results don't guarantee future performance, but if this pace continues, the Vanguard Growth ETF could be a lucrative addition to investors' portfolios. Averaging 12% annual returns, here's how much $500 monthly investments would grow based on the number of years invested:
| Years Invested | Investment Value |
|---|---|
| 10 | $105,300 |
| 15 | $223,700 |
| 20 | $432,300 |
| 25 | $800,000 |
| 30 | $1.44 million |
Calculations by author. Investment values are rounded to the nearest hundred and don't include the fund's expense ratio.
The ETF is low-cost (0.04% expense ratio), so you also don't have to worry about losing a lot of your gains to feed each year. It's not uncommon for similar ETFs to have expense ratios up to 0.75%. That might not seem like much on paper, but it can add up as your investment grows. That's $40 in annual fees per $100,000 invested versus $750.
Regardless of the specific returns, consistent investments in the fund should help investors build a nice nest egg over time if it continues outperforming the market, which I trust it can.
