Investing in the stock market is a fantastic way to build wealth, and given stock prices continue to soar, now is a fantastic time to load up on quality investments.
It's more important than ever, though, to invest in the right places. Even shaky investments can perform well when the market is thriving, but they may struggle to see consistent growth over the long term. By doing your research and filling your portfolio with strong investments, you can take full advantage of this bull market.
There's no single correct way to invest, but exchange-traded funds (ETFs) are a simple, no-fuss option that can help you generate wealth with little effort. While there are countless ETFs to choose from, these three Vanguard ETFs could help take you from zero to half a million dollars or more.
1. Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF (VOO 1.00%) tracks the S&P 500 index, which means it includes the same stocks as the index itself and aims to mirror its performance. The index contains around 500 stocks from the largest and strongest companies in the U.S., ranging from tech giants like Apple and Amazon to established brands like Procter & Gamble and Coca-Cola.
When you invest in just one share of this ETF, then, you'll instantly own a stake in all 500 of these companies across a wide variety of industries. This can create a diversified portfolio with much less effort than if you were to invest in individual stocks.
The S&P 500 itself also has an impeccable track record of recovering from downturns. Over the last century, it's faced severe crashes, recessions, and bear markets -- yet it's rebounded from every single one so far. While there are no guarantees in the stock market, the S&P 500 ETF will likely recover from future downturns, too.
Over the past 10 years, the Vanguard S&P 500 ETF has posted an average return of 12.57% per year. Historically, though, the market itself has clocked an average return of close to 10% per year. If you were to invest, say, $200 per month while earning a 10% average annual return, here's approximately how much you could accumulate over time:
| Number of Years | Total Portfolio Value |
|---|---|
| 20 | $137,000 |
| 25 | $236,000 |
| 30 | $395,000 |
| 35 | $650,000 |
| 40 | $1,062,000 |
Data source: Author's calculations via investor.gov.
To reach $500,000 in total savings, it would take between 30 and 35 years in this scenario. But if you're able to invest more than $200 per month, you could achieve that goal faster. For instance, if you were to invest $400 per month, you'd have around $500,000 in just over 25 years, all other factors remaining the same.
2. Vanguard Total Stock Market ETF
The Vanguard Total Stock Market ETF (VTI 0.93%) is similar to the S&P 500 ETF, except it's much broader. This ETF contains 3,750 holdings from companies of all sizes -- from large-cap stocks down to micro-cap stocks.
Vanguard Total Stock Market ETF aims to replicate the performance of the stock market as a whole, and if you're looking to add some variety to your portfolio, it doesn't get much more diversified than this. With thousands of stocks within a single fund, you'll own a stake in companies of all sizes across every sector.
While more variety can reduce your risk, these types of "safer" investments often have lower average returns, too. Over the last 10 years, this ETF has posted an average annual return of 11.91%, which is slightly lower than the Vanguard S&P 500 ETF.
Still, though, you could earn a significant amount over time. If we play it safe and assume you earn an 8% average annual return (which is slightly lower than the market's historic average), here's approximately how much you'd have over time if you were to invest $200 per month:
| Number of Years | Total Portfolio Value |
|---|---|
| 20 | $110,000 |
| 25 | $175,000 |
| 30 | $272,000 |
| 35 | $414,000 |
| 40 | $622,000 |
Data source: Author's calculations via investor.gov.
This ETF may be a good fit for anyone looking for a broader investment with as much diversification as possible. While you may earn lower average returns over time, this can be the perfect fit for risk-averse investors.
3. Vanguard Growth ETF
The Vanguard Growth ETF (VUG 1.82%) contains 208 stocks with the potential for above-average growth.
Just over half of the fund is made up of stocks in the tech industry, and with fewer holdings than the other two ETFs on this list, it offers the least amount of diversification. However, it's designed to beat the market, and it's managed to do that successfully over the past decade.
In the last 10 years, this ETF has clocked an average return of 14.58% per year. Even if you only earn, say, 12% average annual returns over time, here's approximately how much you could accumulate by investing just $200 per month:
| Number of Years | Total Portfolio Value |
|---|---|
| 20 | $173,000 |
| 25 | $320,000 |
| 30 | $579,000 |
| 35 | $1,036,000 |
| 40 | $1,841,000 |
Data source: Author's calculations via investor.gov.
When investing in a growth ETF, keep in mind that these types of gains are not guaranteed. While this investment is designed to beat the market, that doesn't necessarily mean that it will.
Even if it does produce above-average long-term returns, it could still see more extreme ups and downs in the short term. Before you buy, then, consider whether you're willing to take on more risk for the chance to potentially earn higher returns over time.
The right investment for you will depend on your risk tolerance and investing goals. By considering the pros and cons of each of these ETFs, it will be easier to decide which one deserves a place in your portfolio.
