Investing in the stock market is one of the most effective ways to build long-term wealth, and with stock prices on the rise, now could be a fantastic time to buy.
The S&P 500 recently reached a new all-time high, soaring by nearly 38% from its low point in October 2022. But just because the index has reached new heights doesn't mean it's not a good time to buy. Prices could have much higher to climb, and by investing now, you can take advantage of those potential gains.
It's more important than ever, though, to invest in the right places. Exchange-traded funds (ETFs) can be fantastic investments for those looking for a safer and lower-effort option -- and there's one ETF that could turn just $100 per month into more than half a million dollars.
Building wealth with the right ETF
An ETF is a basket of securities bundled together into a single investment, and each fund can contain dozens or even hundreds of stocks. By investing in just one ETF, you'll instantly own a stake in all the stocks within it -- making it easier to build a well-diversified portfolio.
There are many ETFs to choose from, but one particularly strong option is the Vanguard Growth ETF (VUG 1.82%). This ETF contains 208 stocks with the potential for above-average growth, and it's designed to beat the market over time.
Historically, it's managed to achieve that goal. Over the past five years, it's earned total returns of more than 129%, while the S&P 500 has seen returns of around 86% in that time.
The difference is even more impressive over the long term. Since its inception in 2004, VUG has earned total returns of around 544%, compared to the S&P 500's total returns of 326% in that time. While there are never any guarantees when it comes to the stock market, and past performance doesn't predict future returns, this ETF does have a solid history of outperforming the market.
Balancing risk and reward
The Vanguard Growth ETF also has a healthy balance of risk and reward in its mix of stocks. Growth ETFs, in general, tend to be riskier than broad-market funds like an S&P 500 ETF, as growth stocks are often more volatile than more established stocks.
However, the fund's top 10 holdings make up around half of its total composition, and these stocks are household names like Amazon, Apple, Nvidia, and Tesla. While these stocks may not experience explosive growth, they're also more stable than many smaller growth stocks -- limiting your risk.
The other half of the fund, then, is made up of nearly 200 smaller stocks. These stocks can carry more risk, but they also have more room for growth. If any one of them becomes a superstar performer, you could potentially earn much higher-than-average returns.
How to turn $100 per month into $518,000
Again, there are no guarantees when investing in the stock market. So, although this ETF has performed well in the past, that doesn't necessarily mean it will continue earning similar returns in the future.
That said, this ETF is designed to outperform the market over time. Over the past 10 years, it's earned an average rate of return of about 14% per year. To play it safe, though, let's assume your investment only earns average returns of 12% per year going forward -- which is slightly higher than the market's historic average of 10% per year.
If you're investing $100 per month while earning a 12% average annual return, here's approximately how much you could accumulate over time:
| Number of Years | Total Portfolio Value |
|---|---|
| 20 | $86,000 |
| 25 | $160,000 |
| 30 | $290,000 |
| 35 | $518,000 |
| 40 | $921,000 |
Data source: Author's calculations via investor.gov.
To reach $518,000 in total savings, you'll need to invest consistently for around 35 years. But if you have even a few more years to invest, you could potentially earn far more.
Similarly, the more you're able to contribute each month, the more you can earn over time. If you were to invest $200 per month, for example, you'd have just over $1 million after 35 years, all other factors remaining the same. With $300 per month, you'd reach nearly $1.6 million in that time.
Not every investment will fit every portfolio, but if you're looking for an ETF with a history of earning above-average returns over time, the Vanguard Growth ETF could be a smart option. With enough time and consistency, you could potentially earn hundreds of thousands of dollars or more.
