It's fun to invest your money and watch it grow. But even before you commit any money, you can estimate a rate of return for your investment to calculate how much you'd have at the end of a certain period.
You can do this for any investment, including exchange-traded funds (ETFs). They're popular investment vehicles because they trade like stocks, offering more liquidity than mutual funds while providing similar diversification benefits.
The iShares Russell 1000 Growth ETF (IWF 0.36%), with about $107 billion in assets, has drawn many investors' attention. If you were to invest $1,000 in it today, how much might you have in five years?
After making some assumptions, we can make that calculation.
Image source: Getty Images.
What are you investing in?
Before figuring out your potential investment return, it's important to learn more about the iShares Russell 1000 Growth ETF. After all, you should understand what you're investing in before committing any funds.
The ETF invests in mid-cap and large-cap stocks that are components of the Russell 1000 Growth index. Investors expect growth stocks in general to have better-than-average rates of earnings increases. Currently, there are 392 stocks in the growth index. It's a weighted index, but with limits.
The total weight of companies with individual weights above 4.5% can be no more than 45% of the index. And no single company in it can have a weight greater than 22.5%.
Information technology sector stocks hold a 46.1% weighting in the iShares Russell 1000 Growth ETF. That's followed by the consumer discretionary sector's 14.9% and communications' 12.7% weightings.
The ETF also has a degree of concentration in individual stocks. The 10 largest equities account for about 57% of the fund. These include familiar names like Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), NVIDIA (NASDAQ: NVDA), and Amazon (NASDAQ: AMZN).
Since the ETF is passively managed in that it tracks an index, it has a fairly low 0.19% expense ratio. That's important for investors -- lower fees translate into investors keeping more money and reaping higher returns.
Historical return
For a number of years, large-cap growth stocks have performed well compared to value stocks. The Russell 1000 Growth index returned a cumulative 121.2% over the last five years through June 19, easily besting the Russell 1000 Value index's 85%.
The iShares Russell 1000 Growth ETF thus generated outsized returns for shareholders. The ETF produced a 19.9% average annual return over the last five years through March 31.
So what can we expect from it over the next five years? Let's consider a few different scenarios.
A look ahead
Of course, as most investors know, past returns offer no guarantees about the future. That's sound, but historical returns can serve as a good starting point.
A 19.9% annualized return over the next five years would grow a $1,000 investment into $2,478 -- about 2.5 times your initial investment.
However, given the difficulty in predicting the future, it's wise to contemplate other possibilities. That's particularly necessary these days when U.S. economic policy remains so uncertain. If the ETF produces a 5% annualized return, your $1,000 investment would grow to $1,276.
Of course, with interest rates on some certificates of deposit over 4%, you might not feel so good about this return from a stock-based asset.
It's hard to imagine the ETF having a higher return than it has achieved in the past five years. But what if it generated a 25% return? You'd end the period with $3,052.
