Investing can be an intimidating and daunting pursuit. People often incorrectly believe you need to be a good stock picker to profit from the capital markets. Selecting individual stocks can be a worthwhile endeavor, but it's not for everyone. And it doesn't need to be.
Instead, investing in passive vehicles such as exchange-traded funds (ETFs) is a good option for most people. And when it comes to ETFs, investors have no shortage of choices. If you're looking for exposure to blue chip, established enterprises, look no further -- the Vanguard Growth ETF (VUG 1.34%) achieves both of these goals at an affordable price.
Below I'll explore why scooping up shares of the Vanguard Growth ETF now might make sense.
NYSEMKT: VUG
Key Data Points
Big names
Two of the most popular ETFs on the market are the Vanguard S&P 500 ETF (VOO 1.34%) and the Invesco QQQ Trust (QQQ 1.50%). If you're looking for diversification and exposure to the world's largest businesses, the Vanguard S&P 500 ETF has you covered.
On the other hand, the Invesco QQQ Trust provides investors with exposure to the largest companies in the Nasdaq Composite. Given that the Nasdaq is primarily a tech-heavy index, investors won't achieve too much diversification with this particular fund.
By contrast, the Vanguard Growth ETF represents the best of both worlds. It's comprised of the largest growth companies across a range of industries. An investment in the Vanguard Growth ETF will provide exposure to companies such as Microsoft, Nvidia, Amazon, Eli Lilly, Meta Platforms, and Visa.
Image Source: Getty Images
Even bigger gains
On the surface, you may be attracted to the Vanguard Growth ETF because of its composition. You'll have access to high-growth opportunities in technology, healthcare, fintech, and other areas -- all in one vehicle.
But a more subtle feature of the fund is its performance relative to the broader market. The chart below illustrates that the Vanguard Growth ETF has handily outperformed the S&P 500 on a total return basis over the long term.
VUG Total Return Level data by YCharts.
The reason for its superior performance is quite intriguing. So far this year, both the Nasdaq and S&P 500 have set and eclipsed multiple trading levels. But interestingly, it's only a small cohort of stocks that are contributing to the overall gains.
In particular, the "Magnificent Seven" have played a major role in the broader market momentum. Another way of looking at this dynamic is that the world's largest companies by market cap are effectively responsible for much of the generous returns this year.
Since the Vanguard Growth ETF places a higher weighting on the biggest companies, the fund inherently benefits when these stocks perform well. Furthermore, since the gains from these megacap stocks outperform the losses of other positions, the Vanguard Growth ETF continues to climb higher.
Growth at an affordable price
One thing investors should understand about passive funds is that they carry management fees. But with an expense ratio of just 0.04%, the Vanguard Growth ETF is one of the most attractive opportunities out there. The Invesco QQQ Trust is far more costly, with an expense ratio of 0.20%. Considering investors achieve more diversification in the Vanguard Growth ETF, choosing it is a no-brainer.
My one word of caution for investors considering the Vanguard Growth ETF is that its current share price of $337 is hovering near all-time highs. This makes sense considering that the fund heavily weights megacap stocks that are trading near record levels.
It's important to take a long-term approach when you're investing. Sitting on the sidelines and waiting for a sell-off can have merit, but given that the Vanguard Growth ETF is a passive strategy, I wouldn't over-analyze the opportunity. The fund provides exposure to the world's largest businesses across a variety of high-growth markets.
For investors looking to supplement their portfolios with a proven, reliable growth opportunity, the Vanguard Growth ETF could be a suitable choice. I think now is a terrific time to use dollar-cost averaging to initiate or add to a position -- just plan on holding it for a long time.
