Can you afford to save and invest $400 per month into the stock market? If so, then you could be putting yourself on track to growing your portfolio to at least $1 million in the future.
And the good thing is, you don't have to take on risky investments or worry about picking individual stocks, either. Through an exchange-traded fund (ETF), you can have the best of both worlds -- the safety that comes with diversification and the strong returns that can come from investing in top growth stocks.
Vanguard has many top ETFs investors can choose from, and an excellent one that investors can put money into each month is the Vanguard Growth ETF (VUG +1.48%). Here's why it's a great buy, especially if you want to build up a big balance over the years.
NYSEMKT: VUG
Key Data Points
The fund targets top growth stocks
If you want to earn a significant return in the long run, growth stocks are likely going to play a crucial role in your investing strategy. They can deliver better gains than dividend stocks, which focus more on providing investors with recurring income rather than with pursuing aggressive growth strategies. The Vanguard Growth ETF specifically tracks large-cap growth stocks.
There are 188 stocks in the portfolio, although the top three stocks -- Apple, Microsoft, and Nvidia -- account for a big chunk and represent 36% of the ETF's total holdings. But outside those three, no other stock accounts for 5% of the ETF's overall weight. At nearly 60% of its total holdings, the fund is heavily dependent on tech stocks and how they perform. That means there could be some bad years due to the volatility that comes with investing in tech, but long term, the stocks should help the fund deliver some great returns.
How investing $400 per month could grow to $1 million
Not having a lump sum to invest right now doesn't mean your returns can't eventually get to $1 million. If you invest $400 each month, that's $4,800 you will have invested over a full year. If you do that for 20 years, you've put aside $96,000. And if you can extend that streak to 30 years, then you will have invested $144,000.
That can be a lot of money to put aside in an ETF. But thanks to the effects of compounding, your total investment can be worth a lot more than that.
Consider that the Vanguard Growth ETF has grown by 880% over the past 20 years, when including its dividend. That averages out to a compounded annual growth rate of approximately 12.1%.
For the sake of being conservative, however, let's assume that you average a slightly slower annual return of approximately 11%. If you were to invest $400 per month and average that type of return in the long run, your portfolio would grow to more than $630,000 after a period of 25 years. And if you can keep investing for 30 years, your portfolio would be worth more than $1.1 million.
Disciplined investing is the key to growing your portfolio
Even without swinging for the fences and assuming an extremely high rate of return, you can get your portfolio to the $1 million mark. The key is being able to save and invest each month, and being able to keep that money invested for the long haul. It's not easy to maintain, but there's definitely a big motivating reason to do so -- it could help you grow your portfolio to more than $1 million.
The Vanguard Growth ETF is just one ETF you can consider, but there are many other solid funds you can choose to invest in as well.
