Just about every investor should be considering index funds for their long-term portfolio, because they're hard to beat. The S&P 500 index of 500 of America's biggest and best companies, for example, has outperformed most large-cap stock funds, many of which are run by highly trained financial professionals working hard to outperform the index. Over the past decade, for example, the S&P 500 bested 85% of all large-cap funds.
A particularly convenient kind of index fund to invest in is an exchange-traded fund (ETF) -- a fund that trades like a stock. And a particularly promising ETF to consider is the Vanguard Growth ETF (VUG 1.34%), which tracks the performance of the CRSP US Large Cap Growth Index.
Image source: Getty Images.
Here are some reasons to love this fund, buy into it, and hold it for a very long time.
1. Low fees
First off, since fees can make such a big difference in your overall investment results, it's always good to favor funds with low fees. The Vanguard Growth ETF delivers on that score, with an expense ratio (annual fee) of just 0.04%. That means you'll be forking over $0.40 annually for each $1,000 you have invested in the fund. You can probably swing that, right?
2. Powerful growth
Next, the Vanguard Growth ETF is a performance powerhouse. Check out its average annual returns, which I'll compare to the also-excellent SPDR S&P 500 ETF:
|
Time period |
Vanguard Growth ETF |
SPDR S&P 500 ETF |
|---|---|---|
|
Past 3 years |
14.09% |
11.91% |
|
Past 5 years |
17.41% |
14.57% |
|
Past 10 years |
15.97% |
13.39% |
|
Past 15 years |
16.44% |
14.33% |
Data source: Morningstar.com as of Feb. 4, 2025.
Just as small differences in fees can result in huge differences in your portfolio's value over many years, so can seemingly small differences in growth rates. It's worth appreciating that the results above reflect periods with above-average returns. Over many decades, the stock market has averaged annual returns of close to 10%.
So let's see how your money might grow in the Vanguard Growth ETF if you average annual gains of 10% or 12%:
|
Investing $12,000 annually for |
Growing at 8% annually |
Growing at 10% annually |
Growing at 12% annually |
|---|---|---|---|
|
5 years |
$76,032 |
$80,587 |
$85,382 |
|
10 years |
$187,746 |
$210,374 |
$235,855 |
|
15 years |
$351,892 |
$419,397 |
$501,039 |
|
20 years |
$593,076 |
$756,030 |
$968,385 |
|
25 years |
$947,452 |
$1,298,181 |
$1,792,007 |
|
30 years |
$1,468,150 |
$2,171,321 |
$3,243,511 |
|
35 years |
$2,233,226 |
$3,577,522 |
$5,801,557 |
|
40 years |
$3,357,372 |
$5,842,222 |
$10,309,707 |
Data source: Calculations by author.
To be clear, your investment in the Vanguard Growth ETF might average only 5% or maybe 15% over the next 10, 20, or 30 years. There's no guarantee. But based on past results, you're likely to outperform the S&P 500 index of 500 of America's biggest companies.
The table above also shows the power of time. If you're already 45, you may not be growing your portfolio for 40 years -- though some of your portfolio might remain invested in stocks for 40 years. After all, some of us will be living to age 95 and beyond.
If you're young, though, or you have young adult kids, you can see that amazing results are possible -- simply by investing an average of $1,000 per month over very long periods.
3. A compelling portfolio
So what's in this amazing ETF? Here are the top 10 holdings and the percentage of the fund's value that each represented as of the end of 2024:
|
Stock |
Percent of ETF |
|---|---|
|
Apple |
13.37% |
|
Microsoft |
11.07% |
|
Nvidia |
11.04% |
|
Amazon |
7.34% |
|
Meta Platforms |
4.52% |
|
Tesla |
3.90% |
|
Alphabet Class A |
3.01% |
|
Alphabet Class C |
2.44% |
|
Eli Lilly |
2.34% |
|
Broadcom |
1.92% |
Data source: Vanguard.com as of Dec. 31, 2024.
Of course, the table shows only the top 10 holdings. Know that there were recently 179 stocks in the fund, each with a weighting of less than 1.93%.
4. Great growth prospects
The top 10 holdings in the fund together made up fully 61% of its value, so if you're investing in the Vanguard Growth ETF, you should have great expectations for these 10 -- or the companies like them that might end up among the top 10 in the future. (Visa, for example, was recently the 11th-largest holding.)
You may notice that all of the "Magnificent Seven" companies -- Apple, Microsoft, Google parent Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla -- are held in the fund, in relatively large positions. Those companies have been dubbed magnificent because of their stellar returns over time that have helped them grow to enormous size. If you're bullish on many or all of them, this ETF will instantly make you a shareholder in each.
Anyone bullish on tech stocks might consider the Vanguard Growth ETF as it recently had 51% of its value in them. That includes lots of companies heavily involved in such growing areas as software, semiconductors, cloud computing, cybersecurity, and artificial intelligence.
So give this great ETF some consideration -- and know that there are other terrific ETFs out there as well.
