There's no right or wrong way to invest in the stock market, but if you're looking for a low-maintenance way to build wealth over time, exchange-traded funds (ETFs) can be a fantastic choice.
An ETF is a collection of stocks grouped together into a single investment. When you buy just one share of an ETF, you're actually buying a stake in dozens or hundreds of companies at once. This can make it far easier and more affordable to build a diversified portfolio, limiting your risk.
While ETFs require less effort than investing in individual stocks, that doesn't mean they can't earn substantial returns. These three powerhouse Vanguard ETFs have a history of beating the market, and they could turn just $200 per month into half a million dollars or more over time.
1. Vanguard Growth ETF
The Vanguard Growth ETF (VUG -1.46%) contains 188 stocks with the potential for above-average returns. The stocks are varied across 11 different industries, though nearly 60% of the fund is allocated to stocks in the tech sector -- which can be both a benefit and a risk.
The tech industry, in general, tends to see explosive returns when the market is thriving. But during periods of volatility, it's often hit the hardest. You can expect to see more severe ups and downs with this type of fund, so it's also wise to hold it for at least a few years to ride out any stock market storms.
If you can weather the turbulence, this ETF can be a fantastic way to generate wealth. Over the past 10 years, the Vanguard Growth ETF has earned an average rate of return of 15.06% per year.
2. Vanguard Information Technology ETF
The Vanguard Information Technology ETF (VGT -1.73%) is another growth ETF, except it's more heavily focused on tech stocks. While the Vanguard Growth ETF contains stocks from many different sectors, this fund includes 318 stocks solely from the technology industry.
Again, tech stocks often carry more risk and tend to be more volatile than stocks from other sectors. If you choose to invest in this fund, it's wise to also invest in at least one or two other ETFs that are more diversified to limit your risk.
However, with increased risk can sometimes come increased potential for reward. This ETF has earned an average rate of return of 20.25% per year over the past 10 years, significantly outperforming both the Vanguard Growth ETF and the market in general. If you're comfortable with greater levels of volatility, this fund could help supercharge your earnings.
3. Vanguard Mega Cap Growth ETF
The Vanguard Mega Cap Growth ETF (MGK -1.39%) is a smaller fund with only 71 stocks, but each of those stocks is an absolute powerhouse.
The Mega Cap Growth ETF only contains stocks from the biggest companies in the world. The median market cap among stocks in this fund is a staggering $2.1 trillion, compared to $1.2 trillion for the Vanguard Growth ETF and $747 billion for the Information Technology ETF.
Investing in mega-cap stocks can be a smart way to reduce risk, as bigger companies tend to have a better chance of surviving market downturns. But they also may not have as much potential for growth as smaller corporations.
That said, this fund has still earned an average rate of return of 15.90% per year over the past 10 years, perhaps due at least in part to superstar juggernauts like Nvidia earning record-breaking returns in recent months.
How much can you earn with these ETFs?
As with any investment, past performance doesn't guarantee future returns -- so these funds may or may not continue seeing similar returns going forward. Growth ETFs, in particular, can see wildly different returns from year to year, so don't be surprised if your future earnings look different from the fund's past performance.
But to get a ballpark idea of how much you could earn, let's assume you could earn average annual returns of 12% per year (just higher than the market's historic average of 10% per year), 15% per year, or a very optimistic 20% per year. If you were to invest $200 per month, here's approximately how that would add up over time:
| Number of Years | Total Portfolio Value: 12% Avg. Annual Returns | Total Portfolio Value: 15% Avg. Annual Returns | Total Portfolio Value: 20% Avg. Annual Returns |
|---|---|---|---|
| 20 | $173,000 | $246,000 | $448,000 |
| 25 | $320,000 | $511,000 | $1,133,000 |
| 30 | $579,000 | $1,043,000 | $2,837,000 |
Data source: Author's calculations via investor.gov.
Again, there are no guarantees that you'll see these types of returns with any of these ETFs. But even earning slightly higher-than-average returns can still result in accumulating more than half a million dollars after a few decades of consistent investing. If your ETF performs particularly well, you could earn far more.
Investing in ETFs can be a smart way to manage risk with less effort than buying individual stocks, and growth ETFs can help supercharge your earnings. By considering your risk tolerance and overall goals, you can decide whether these funds are the right fit for your portfolio.
