Investing in exchange-traded funds (ETFs) can be a fantastic way to generate wealth with minimal effort. Each ETF may contain dozens or hundreds of different stocks, taking much of the guesswork and research out of where to buy.
Growth ETFs, in particular, are designed to earn above-average returns over time. The stocks in these types of funds have the potential for faster-than-average growth, so these ETFs are more likely to beat the market.
While there's no single best investment that will fit every portfolio, there's one powerhouse growth ETF that has a history of earning above-average returns while still limiting risk. And with just a couple of hundred dollars per month, it could potentially help you earn more than $700,000 over time.
Finding the right growth ETF
There are countless growth ETFs to choose from, and each will have a unique mix of advantages and disadvantages. But one of the stronger options is the Schwab U.S. Large-Cap Growth ETF (SCHG +1.52%).
This ETF contains 249 stocks with the potential for above-average growth, with around 45% of the fund allocated to stocks from the tech sector. While having such a large allocation to a single industry can increase risk, with hundreds of stocks in the fund, this ETF still provides ample diversification.
Image source: Getty Images.
Also, the fund's top-10 holdings make up just over half of its total composition. These stocks are from behemoth companies like Apple, Amazon, Microsoft, and Nvidia. Although even large stocks can still experience significant volatility, they're far more likely to rebound.
Alongside these juggernaut stocks are dozens of smaller stocks. These stocks may carry more risk than their larger counterparts, but they also have more potential for explosive growth. This balance of blue chip stocks with smaller growth stocks can help maximize your earnings while limiting risk.
Finally, this ETF has an expense ratio of just 0.04%, meaning you'll pay $4 per year in fees for every $10,000 in your account. This is far lower than many other funds, which can save you thousands of dollars in fees over time.
Turning $200 per month into $700,000 or more
It's impossible to say precisely how any investment will fare in the future, but growth ETFs can be a bit more unpredictable. When the market is thriving, they will often earn far higher-than-average returns. But they also tend to be hit harder during downturns.
When you invest in a growth ETF, it's more important than ever to keep a long-term outlook. These funds can be volatile in the short term, but if you stay invested for decades, you're far more likely to see significant earnings.
NYSEMKT: SCHG
Key Data Points
Since its inception in 2009, the Schwab U.S. Large-Cap Growth ETF has earned an average rate of return of 15.95% per year. (For context, the market itself has historically earned an average return of around 10% per year.) Whether or not this ETF will continue experiencing those types of returns, though, is anyone's guess.
To play it safe, let's look at a few scenarios where you may earn lower returns, too. If you were to invest $200 per month, here's approximately how much you could accumulate over time if you were to earn 11%, 13%, or 15% average-annual returns:
| Number of Years | Total Portfolio Value: 11% Avg. Annual Return | Total Portfolio Value: 13% Avg. Annual Return | Total Portfolio Value: 15% Avg. Annual Return |
|---|---|---|---|
| 20 | $154,000 | $194,000 | $246,000 |
| 25 | $275,000 | $373,000 | $511,000 |
| 30 | $478,000 | $704,000 | $1,043,000 |
Data source: Author's calculations via investor.gov.
To reach $704,000 in total savings, you'd need to invest consistently for around 30 years while earning a 13% average-annual return -- which is lower than this ETF's historic average. If this fund continues to perform at the rate that it has over the past 15 years, you could potentially earn significantly more.
There are never any guarantees when it comes to the stock market, but the right growth ETF can leverage risk and reward to help you make a lot of money over time. While they can be more volatile than other funds, they can also make it easier to build life-changing wealth.
