Because it provides investors with a high-level overview of how some of the largest U.S. stocks are doing, the S&P 500 gets a lot of attention. It’s certainly one of the most widely followed market indices.
But for investors who want exposure in their portfolios to specific factors, there are different options to consider. The Vanguard Growth ETF (NYSEMKT: VUG) is a great example.
Since March 2014, this exchange-traded fund (ETF) has turned a $10,000 initial investment into $39,400, as of March 5, a figure that includes dividends. That translates to an impressive 294% total return, which crushes the S&P 500’s performance.
Let’s take a closer look at this ETF.
Growth is the name of the game
The Vanguard Growth ETF owns 208 different stocks. These businesses usually post faster revenue and profit growth than most companies out there. Just in the last five years, the average business in the ETF put up a 19.6% annualized earnings gain. That’s impressive.
However, these stocks are also more expensive. The average price-to-earnings ratio of 35.6 is much higher than the 22.9 multiple for the S&P 500.
Given the ETF’s growth focus, it’s not too surprising that 75% of the holdings come from the technology and consumer discretionary sectors. These enterprises have greater expansionary potential than, say, financial services or utility businesses.
Investors are surely familiar with some of the top positions. In fact, the so-called “Magnificent Seven” make up a whopping 51% of the Vanguard Growth ETF.
Some of the world’s most dominant businesses are included. Microsoft is its biggest position, representing 13.2% of the assets. Apple and Nvidia round out the top three. These stocks have skyrocketed in the last decade.
Some critical investors might view these companies as having a bit more risk because they operate in industries that experience rapid change. That adds some uncertainty to the equation. But the potential for higher returns definitely makes up for it.
Time in the market matters
The Vanguard Growth ETF is a solid choice because of its low fees, allowing investors to keep more of their gains over time. And this product is offered by a highly regarded firm in the asset management industry that was founded in 1975. Investors can have some peace of mind that their hard-earned savings are in good hands.
But because the market is near all-time highs, some people might be hesitant to put money to work. Whether it’s the expectation of lower interest rates or confidence that a recession will be avoided, investors appear to be optimistic.
It might seem like the smart move, then, is to wait for a meaningful pullback before investing in the Vanguard Growth ETF. If you have a truly long-term mentality to be an investor in stocks for decades, it hardly makes a difference if you put money to work at peak prices. At the end of the day, time in the market matters much more than trying to successfully call a bottom.
Investors interested in a low-cost, diversified way to gain exposure to growth businesses should buy this ETF without hesitation. And for those who have extra money to invest, perhaps dollar-cost averaging every month or quarter makes sense for you. This strategy can increase returns.
Should you invest $1,000 in Vanguard Index Funds – Vanguard Growth ETF right now?
Before you buy stock in Vanguard Index Funds – Vanguard Growth ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard Index Funds – Vanguard Growth ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of February 26, 2024
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
1 Unstoppable Vanguard ETF That Turned $10,000 Into Nearly $40,000 in the Last Decade was originally published by The Motley Fool
Signup bonus from
