It's always inspiring to hear stories about people who invested in a company and made tons of money as the company grew and succeeded. Although these stories are a testament to the power of investing, they can also be misleading. This is not because it doesn't happen often but because it doesn't take hitting big on a single company to make a lot of money in the stock market.
Investing consistently in exchange-traded funds (ETFs) is a great way to build wealth. ETFs allow you to invest in dozens, hundreds, and sometimes thousands of companies in a single investment. For investors looking for an ETF that can help carry them to millionaire land, look no further than the Vanguard Growth ETF (VUG -1.37%).
A history of market-beating performance
Since its January 2004 inception, this ETF has outperformed the market (based on S&P 500 returns), averaging around 11.6% total returns. The returns are even more impressive when you zoom in on the past decade, with the ETF averaging around 15.7% total returns.
VUG Total Return Level data by YCharts
The ETF's past success doesn't mean it'll continue on that path, but for the sake of illustration, let's meet in the middle and assume it averages around 13% annual returns over the long haul. Averaging those returns, $500 monthly investments could pass the $1 million mark in just over 25 years.
If we assume (with the emphasis being on "assume") the ETF continues averaging its 15.7% total returns from the past decade, $500 monthly investments could get you over the $1 million mark in around 23 years. At 11.6% annual returns, it'd take close to 28 years.
There's no way to predict how the ETF will perform going forward, but the greater point is the power of time and compound earnings. Hitting $1 million by strictly saving is a tough task and not feasible for most people. However, it becomes much more attainable when you give yourself time and make consistent investments, regardless of how seemingly small.
So, why go with the Vanguard Growth ETF?
This ETF can provide investors with the best of both worlds. On one end, since it only contains large-cap stocks, it provides more stability and less volatility than you'd typically find with smaller growth stocks. On the other end, the growth focus means it's constructed with the intent of outperforming the market.
There's a risk-reward trade-off in investing, and this ETF is the sweet spot in the middle in most cases. It's not just because it only contains large-cap stocks, either. It's which large-cap stocks are leading the way. Here are the ETF's top 10 holdings:
- Microsoft: 12.60%
- Apple: 11.51%
- Nvidia: 10.61%
- Alphabet (both share classes): 7.54%
- Amazon: 6.72%
- Meta Platforms: 4.21%
- Eli Lilly: 2.88%
- Tesla: 1.98%
- Visa: 1.72%
The Vanguard Growth ETF isn't as diversified as other broad ETFs, with the top 10 holdings accounting for nearly 60% of the fund and the "Magnificent Seven" stocks accounting for around 55%. However, many of these companies (especially the megacap tech stocks) have been some of the stock market's highest performers over the past decade and have great growth opportunities still ahead of them.
MSFT Total Return Level data by YCharts
The big tech stocks should continue to see growth in areas like cloud computing, artificial intelligence, and cybersecurity; Eli Lilly will benefit from advancements in biotechnology; Tesla is one of the leaders in electric vehicles, which are still early in their development; and Visa should be one of the frontrunners as the world transitions to more digital payments.
The concentration of the ETF adds risk, particularly if Microsoft, Apple, or Nvidia experiences a downturn, but those companies are well-positioned to drive growth over the long haul despite any short-term pullbacks that may happen. Consistent investments over time into the Vanguard Growth ETF should pay off for investors.
