Investing in the stock market is a fantastic way to build wealth, but choosing the right investments can be daunting. The wrong stocks can result in losing more than you gain, and building a strong portfolio can be expensive and time-consuming.
An exchange-traded fund (ETF) is a beginner-friendly investment that can still help you earn a lot of money over time. 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 share of an ETF, you'll instantly own a stake in all the stocks within the fund. This can make it far easier to get started investing, as you don't need to worry about researching individual stocks or spending thousands of dollars creating a diversified portfolio. Simply invest whatever you can afford, then let the ETF take care of the rest.
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Growth ETFs, in particular, can be a good choice if you're looking to maximize your returns. These types of funds are designed to beat the market, and each growth ETF contains stocks with the potential for above-average returns.
All growth ETFs have their pros and cons, but there's one fund in particular that could potentially turn just $200 per month into $1.3 million over time: the Schwab U.S. Large-Cap Growth ETF (SCHG 1.09%).
Balancing risk and reward
First, a disclaimer about growth ETFs: They often carry more risk than other types of investments. Growth stocks, in general, tend to be more volatile than their more established counterparts. While they can thrive when the market is surging, they're also often hit harder during downturns.
A good growth ETF, however, will attempt to balance the risks and rewards. The Schwab U.S. Large-Cap Growth ETF contains 250 stocks across a variety of industries, though just under 46% of this fund is allocated to stocks in the tech sector.
NYSEMKT: SCHG
Key Data Points
In general, a more diversified portfolio means less risk. With 250 stocks in the fund, that's already a fair amount of variety. And while allocating nearly half of the portfolio to tech stocks does reduce that diversification, this ETF still leans less on tech than some other growth funds. (For comparison, the Vanguard Growth ETF has more than 56% of its fund allocated to tech, while Invesco QQQ allocates close to 59% of its portfolio to the tech sector.)
In other words, this ETF still carries more risk than, say, an S&P 500 ETF. However, it's less risky than some other growth ETFs, which can make it a smart option for more conservative investors who still want the chance to earn more substantial returns.
Building a million-dollar portfolio
Growth ETFs are designed to earn above-average returns, but there are two important caveats to keep in mind.
First, a long-term outlook is key. These investments can be incredibly volatile in the short term, especially when the market is shaky. It often takes years or even decades to see substantial returns, so only invest if you're willing to keep your money in the market for the long haul.
Second, nothing is guaranteed when it comes to the stock market, but that's especially true with growth ETFs. Past performance doesn't predict future returns, and just because an investment has performed well in recent years doesn't necessarily mean it will continue earning similar returns going forward. That's true with any investment, but given their volatile nature, growth ETFs can be more unpredictable.
That said, it can still be helpful to see how an investment has performed historically to get an idea of the types of returns that are possible. Since its inception in 2009, the Schwab U.S. Large-Cap Growth ETF has earned an average rate of return of just over 16% per year. At that rate, if you were to invest $200 per month, here's approximately how your savings would add up over time:
| Number of Years | Total Portfolio Value |
|---|---|
| 20 | $277,000 |
| 25 | $598,000 |
| 30 | $1,273,000 |
Data source: Author's calculations via investor.gov.
By investing consistently for 30 years, you'd reach nearly $1.3 million in total savings. But to play it safe, let's look at how much you could earn if this ETF isn't able to keep up with its 16% average annual returns. If you're still investing $200 per month, here's approximately how that would add up depending on whether you're earning 10%, 12%, or 14% average annual returns:
| Number of Years | Total Portfolio Value: 10% Avg. Annual Return | Total Portfolio Value: 12% Avg. Annual Return | Total Portfolio Value: 14% Avg. Annual Return |
|---|---|---|---|
| 20 | $137,000 | $173,000 | $218,000 |
| 25 | $236,000 | $320,000 | $436,000 |
| 30 | $395,000 | $579,000 | $856,000 |
Data source: Author's calculations via investor.gov.
For context, the stock market itself has earned an average rate of return of around 10% per year, historically. So even if this ETF isn't able to outperform the market and only earns average returns, you could still potentially earn hundreds of thousands of dollars over time.
Investing in growth ETFs can be a fantastic way to build wealth with less effort than buying individual stocks. If you're willing to take on more risk for the chance to earn higher-than-average returns, the Schwab U.S. Large-Cap Growth ETF could be a great fit for your portfolio.
