The "Magnificent Seven" Stocks Could Help This Vanguard ETF Turn $400 per Month Into $1 Million

The S&P 500 (SNPINDEX: ^GSPC) is coming off a total return of 25% in 2024, which was more than double its average annual gain of 10.5% dating back to when it was established in 1957. The strong result was driven by a group of technology giants dubbed the Magnificent Seven, which earned the title for their incredible size and ability to consistently outperform the broader market.

As of this writing, The Magnificent Seven have a combined value of $17.3 trillion, which accounts for 32.5% of the total value of the entire S&P 500. As a result, they can heavily influence the performance of the index, and they managed to deliver an average return of 60% during 2024:

NVDA data by YCharts

Each of the Magnificent Seven companies have dominant legacy businesses, but they are also leading emerging industries like artificial intelligence (AI), which could supercharge their growth from here. The Vanguard Mega Cap Growth ETF (MGK 0.37%) is an exchange-traded fund (ETF) that invests exclusively in America's largest companies, and it assigns a very high weighting to the Magnificent Seven.

Here's how the ETF could turn an investment of $400 per month into $1 million over the long term.

The Magnificent Seven represents over half of this ETF

ETFs can hold hundreds or even thousands of individual stocks, but the Vanguard Mega Cap Growth ETF holds just 69. Despite investing in the highest-quality companies America has to offer, the fund's relatively narrow portfolio creates some concentration risk, which investors should keep in mind.

In other words, its performance can be heavily influenced by a small number of stocks, which can lead to periods of poor performance if just a few of its largest holdings suffer declines.

Given their enormous combined market capitalization, the Magnificent Seven stocks alone represent 59.1% of the total value of the ETF:

Data source: Vanguard. Portfolio weightings are accurate as of Dec. 31, 2024, and are subject to change.

As I mentioned earlier, the Magnificent Seven companies are operating at the forefront of the AI revolution. Apple's flagship products include the iPhone, iPad, and Mac line of computers. The company has gradually equipped them with powerful new chips over the last couple of years to prepare them for the recent launch of its Apple Intelligence software, which introduced a series of AI-powered features.

Then there is Microsoft, Amazon, and Alphabet, which operate the three largest cloud platforms in the world. It's where businesses can access the data center computing capacity and third-party large language models (LLMs) they need to develop their own AI software.

None of the above would be possible without Nvidia, which supplies the most powerful graphics processors (GPUs) for data centers. The company can't keep up with demand for its new Blackwell chips that are now the gold standard when it comes to processing AI workloads.

Finally, Meta Platforms developed the world's most popular family of open-source LLMs called Llama, which have been downloaded more than 600 million times. Tesla, on the other hand, continues to improve its AI-powered self-driving software that will soon allow its electric vehicles to operate autonomously without human supervision.

Although this Vanguard ETF is dominated by the Magnificent Seven stocks, it does offer some diversification. Sitting just outside its top 10 positions are several non-technology holdings like Costco Wholesale, McDonald's, Booking Holdings, Boeing, and more.

Image source: Getty Images.

Turning $400 per month into $1 million

The Vanguard Mega Cap Growth ETF has delivered a compound annual return of 13.3% since it was established in 2007. However, the ETF has delivered an accelerated return of 16.9% over the last 10 years, thanks to the widespread adoption of cloud computing, enterprise software, and now, AI, which has driven incredible gains in some of its largest holdings.

The below table highlights the return an investor could expect with $400 per month over 10 years, 20 years, and 30 years, based on those two annual growth rates:

Data source: Calculations by author.

Therefore, the ETF could turn $400 per month into almost $1.9 million over the next 30 years as long as it maintains its long-term return of 13.3% per year. However, even if its average annual return dips to 10.5% (which is the average yearly return of the S&P 500), it would still be enough to reach the $1 million milestone in three decades.

The Magnificent Seven stocks won't necessarily be the dominant force in the Vanguard ETF forever. You might be surprised to know that United States Steel, General Motors, and General Electric have each held the title of "world's largest company" since 1901, highlighting the U.S. economy's tendency to evolve over time.

However, AI is likely to drive significant returns for the Magnificent Seven stocks for the foreseeable future, as most Wall Street forecasts consider it to be a multitrillion-dollar opportunity. Plus, companies like Nvidia and Tesla are set up to lead other potential tech revolutions like autonomous driving and robotics, which could be even bigger than AI itself.

Nevertheless, given the highly concentrated nature of this ETF, it might be a good idea for investors to own it as part of a diversified portfolio that includes other funds and individual stocks.