There are many misconceptions about the stock market and investing. One of those is how complex it has to be. People assume you need a finance background or to spend hours researching companies, and that's not the case. You can do all of that, and it has its benefits, but it's not a requirement for making good money in the stock market.
A simpler approach is to invest in an exchange-traded fund (ETF) -- giving you exposure to many companies at once -- and trust them as a collective. If you already have an emergency fund saved and a plan to tackle any high-interest debt you may owe, there's one fund I'd invest $1,000 into without thinking twice -- and that's the Vanguard Growth ETF (VUG 1.34%).
NYSEMKT: VUG
Key Data Points
Vanguard Growth ETF is a two-for-one special
People typically think of growth stocks as smaller or younger companies because those are seen as having more room to grow. However, that label isn't reserved for companies of a particular size. The Vanguard Growth ETF exemplifies this reality. Its holdings include only large-cap growth stocks (companies with market caps of at least $10 billion).
Small- and mid-cap growth stocks are great because they have hyper-growth potential, but their smaller sizes also make them more sensitive to economic conditions and volatility. Large-cap growth stocks can be the best of both worlds. You get high-growth opportunities, but larger companies are generally more stable because of their established businesses and resources.
The median market capitalization of companies in the Vanguard Growth ETF is around $790 billion, so it's led by many market leaders and industry staples.
The fund's top holdings are well-known names
Most large-cap growth stocks are technology companies, and the ETF's holdings reflect that concentration. The technology sector accounts for about 55% of the fund, and the rest is broken down as follows (as of Dec. 31, 2023):
- Basic materials: 1.4%
- Consumer discretionary: 20.4%
- Consumer staples: 0.7%
- Energy: 1.3%
- Financials: 2.6%
- Healthcare: 7.1%
- Industrials: 8.8%
- Real estate: 1.8%
- Telecommunications: 0.9%
- Utilities: 0.2%
Drilling down further, we see that Vanguard Growth's top five holdings are Apple, Microsoft, Amazon, NVIDIA, and Alphabet -- five of the world's six most valuable public companies. Together, they make up about 44% of the ETF's portfolio value.
Typically, you'd want your ETF to be a bit more diversified, but having five of the world's most successful and promising companies as a fund's leading holdings isn't something to frown on. Amazon's stock has performed the worst of the bunch over the past five years and is still up over 85%.
Vanguard Growth has outperformed the market
Investors should want their ETFs to have market-beating potential. Otherwise, you're probably better off just sticking with an S&P 500 ETF and collecting the market average returns (which isn't a bad option).
In the past decade, the Vanguard Growth ETF is up 257% compared to the S&P 500's 175% gain. That's around a 13.5% annualized return, which is pretty good for a 200-plus-stock ETF. Assuming that rate continues, here's roughly how much a monthly investment of $500 could grow to over time.
| Years of Investing | Final Portfolio Value |
|---|---|
| 10 | $113,200 |
| 15 | $252,500 |
| 20 | $514,900 |
| 25 | $1.01 million |
| 30 | $1.94 million |
Calculations by author. Portfolio values rounded down to the nearest hundred.
We can't know how the ETF will perform going forward, but past results give some indication of what might be possible. It also helps that the handful of companies leading the way for the ETF generally have high growth potential. Between artificial intelligence, cloud computing, and other technological innovations, the "Magnificent Seven" stocks that the fund holds could keep driving its growth.
Investing $1,000 into the Vanguard Growth ETF today is a move you can count on likely paying off down the road.
