The stock market has started off 2024 with a bang, as the S&P 500 (^GSPC 1.02%) officially entered a bull market on Jan. 19 by reaching a new all-time high.
Many investors, feeling optimistic about the future, are ready to load up on investments as we continue into the new year. But it's more important than ever to choose your investments wisely. The right stocks can supercharge your portfolio, while the wrong ones could cost you.
Exchange-traded funds (ETFs) can be a fantastic option if you're looking for a simple, low-maintenance investment that requires very little effort on your part. While everyone's investing preferences will differ, there's one Vanguard ETF I'm loading up on in 2024 and beyond.
A growth ETF that packs a punch
Investing in growth ETFs can be a smart way to maximize your earnings while still limiting risk, and the Vanguard Growth ETF (VUG 1.82%) can be a magnificent choice.
This ETF includes 208 stocks from a variety of industries, though around 55% of the fund is allocated toward stocks in the tech sector. It's designed to earn above-average returns over time, and all of the stocks within the fund have the potential for faster-than-average growth. Where this ETF really shines, though, is its mix of blue chip stocks and smaller companies.
Blue chip stocks, such as Amazon, Apple, and Microsoft, may not experience explosive growth. But they're much more stable and reliable than many smaller stocks, which can better protect your investment against volatility. Around half of this ETF's total composition is made up of these types of stocks, helping to limit your risk.
The other half of the fund comprises dozens of smaller stocks. These stocks are riskier than the blue chips, and they can also be more volatile. But they also have more potential for rapid growth, and if any one of them takes off, you could see substantial returns.
Growth ETFs, in general, tend to be riskier than their broad-market counterparts, such as S&P 500 ETFs. That's still true with the Vanguard Growth ETF, but because so much of the fund is allocated toward behemoth blue chip stocks, it can carry less risk than many other growth ETFs.
How much can you earn with this investment?
There are never any guarantees when it comes to the stock market, and this is especially true with growth ETFs. While this type of investment tends to thrive when the market is surging, it's also often hit hard during downturns.
It's extra important, then, to keep a long-term outlook when investing in the Vanguard Growth ETF. The short term can be volatile, but over many years, it has a good chance of beating the market.
While past performance doesn't predict future returns, the Vanguard Growth ETF has earned an average rate of return of just under 14% per year over the past 10 years. To be on the safe side, though, let's assume this investment only earns a 12% average annual return going forward -- which is slightly higher than the market's historic average of around 10% per year.
Say you were to invest $300 per month in this ETF while earning a 12% average annual return. Here's approximately how that would add up over time compared to a broad-market fund earning a 10% average annual rate of return:
| Number of Years | Total Portfolio Value: 12% Average Annual Return | Total Portfolio Value: 10% Average Annual Return |
|---|---|---|
| 20 | $259,000 | $206,000 |
| 25 | $480,000 | $354,000 |
| 30 | $869,000 | $592,000 |
| 35 | $1,554,000 | $976,000 |
Data source: Author's calculations via investor.gov.
If this ETF is able to earn returns higher than 12% per year, on average, it's possible to earn far more than these figures. Just keep in mind that growth ETFs do carry more risk in general, so be sure you're willing to take that risk before you buy.
The Vanguard Growth ETF can be a fantastic addition to your portfolio, but it won't be right for everyone. If you're willing to take on slightly more risk for the chance at earning higher returns over time, it might be worth buying in 2024 and beyond.
