There are many misconceptions about the stock market and investing. One is how complex it is. People think that you need to spend hours learning about finance and researching companies, but that's not the case. All of this can be done and has benefits, but It is not a prerequisite for making big money in the stock market.
A simpler approach is to invest in exchange-traded funds (ETFs), giving you exposure to many companies at once and trusting them as a collective. If you already have an emergency fund saved up and plan to deal with high-interest debt, there's one fund you'll want to invest $1,000 in without hesitation. That's it. Vanguard Growth ETF (VUG 1.30%).
Vanguard Growth ETF is a special 2:1 ETF
People usually think of growth stocks as smaller or younger companies because they are seen as having more room to grow. However, this label is not limited to companies of a certain size. The Vanguard Growth ETF exemplifies this reality. Holdings include large growth stocks ( Market capitalization of at least $10 billion).
Small- and medium-sized growth stocks are great because they have high growth potential, but their small size makes them more sensitive to economic conditions and volatility. Large-cap growth stocks can give you the best of both worlds. Although they offer high growth opportunities, large companies are generally more stable because they have established businesses and resources.
The median market capitalization of the companies participating in the Vanguard Growth ETF is approximately $790 billion, so it is led by many market leaders and major industry players.
The fund's top holdings are celebrities.
Most large-cap growth stocks are technology companies, and the ETF's holdings reflect that concentration. The technology sector accounts for approximately 55% of the fund, with the remainder broken down as follows (as of December 31, 2023):
- Basic materials: 1.4%
- Consumer discretion: 20.4%
- Daily necessities: 0.7%
- energy: 1.3%
- Finance: 2.6%
- health care: 7.1%
- industry: 8.8%
- real estate: 1.8%
- Telecommunications: 0.9%
- utility: 0.2%
Digging deeper, we find that Vanguard Growth's top five holdings are: apple, microsoft, Amazon, Nvidiaand alphabet — 5 of the 6 most valuable publicly traded companies in the world. Together, they account for approximately 44% of the ETF's portfolio value.
Typically, you want your ETF to be a little more diversified, but having five of the world's most successful and promising companies as the fund's main holdings shouldn't raise any eyebrows. Amazon's stock had its worst performance in five years, but it's still up more than 85%.
AAPL data by YCharts.
Vanguard Growth Outperforms the Market
Investors should want their ETFs to have the potential to outperform the market. Otherwise, it's probably better to use it as is. S&P500 Collecting ETFs and market average returns (this is not a bad option).
Over the past 10 years, the Vanguard Growth ETF has gained 257% compared to the S&P 500's 175% gain. That's about 13.5% annualized, which is pretty good for an ETF with over 200 stocks. Assuming this rate continues, here's roughly how much a $500 monthly investment will grow over time.
| long-term investment | Final portfolio value |
|---|---|
| Ten | $113,200 |
| 15 | $252,500 |
| 20 | $514,900 |
| twenty five | $1.01 million |
| 30 | $1.94 million |
Calculations by the author. Portfolio values are rounded down to the nearest hundred.
We don't know how an ETF will perform in the future, but its past results give us some idea of what could happen. It also helps that the small number of companies leading the ETF generally have high growth potential. Between artificial intelligence, cloud computing and other technological innovations, the fund's Magnificent Seven stocks could continue to drive growth.
Investing $1,000 in the Vanguard Growth ETF today is an investment with the potential for future returns.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool's board of directors. Stefon Walters has positions at his Apple and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, Nvidia, and Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool has a disclosure policy.
