Investing in exchange-traded funds (ETFs) can help generate life-changing wealth, whether you're saving for retirement or simply aiming to build a robust financial cushion.
Growth ETFs, specifically, are designed to earn above-average returns over time, and earning even slightly higher returns could boost your total savings by hundreds of thousands of dollars.
While there are countless growth ETFs to choose from, there's one I'm planning to hold for as long as possible: the Vanguard Growth ETF (VUG 0.45%).
A powerful wealth-building tool
The Vanguard Growth ETF contains 160 large-cap stocks with potential for rapid growth. Large-cap stocks can help mitigate some risk, as they are often more stable and less volatile compared to smaller corporations.
NYSEMKT: VUG
Key Data Points
Apple, Nvidia, and Microsoft round out the fund's top three holdings, and combined, these stocks make up just under one-third of the entire portfolio. The other two-thirds, then, is comprised of the remaining 157 stocks.
This mix of assets can help balance risk and reward. While the top three stocks do make up a solid chunk of the fund, it also means this ETF is more likely to thrive when those companies are succeeding. If they falter, though, there are over 100 other stocks that can help prop up the fund. That diversification can further limit risk, especially compared to investing in individual stocks.
Building a million-dollar portfolio
Growth ETFs are often less consistent than broad-market funds, like S&P 500 ETFs, for example. Although they can surge past the S&P 500 during prosperous economic times, they're also often hit harder during downturns.
It's crucial, then, to keep a long-term outlook when investing in a growth ETF. This short term can be volatile at times, but over a decade or two, a growth ETF is more likely to outperform its broad-market counterparts.
Since its inception in 2004, the Vanguard Growth ETF has earned an average rate of return of around 12% per year -- slightly higher than the market's historic average of 10% per year. If you were to invest $200 per month, here's approximately how that could add up over time:
| Number of Years | Total Portfolio Value: 10% Avg. Annual Return | Total Portfolio Value: 12% Avg. Annual Return |
|---|---|---|
| 20 | $137,000 | $173,000 |
| 25 | $236,000 | $320,000 |
| 30 | $395,000 | $579,000 |
| 35 | $650,000 | $1,036,000 |
Data source: Author's calculations via investor.gov.
Even with only slightly higher-than-average returns, this ETF could accumulate hundreds of thousands of dollars more than a broad-market fund. With enough time and consistency, it's even possible to generate over $1 million with this ETF.
ETFs require next to no effort on your part, yet they can build serious wealth over time. The Vanguard Growth ETF is a staple within my portfolio, and I plan to continue buying and holding for as long as possible.
