Forget the Dow Jones: Buy This Magnificent ETF Instead
If you want to invest in the stock market in order to increase your net worth significantly over the long term, that's a fantastic plan. It's hard to beat the stock market for long-term wealth building.
If you pick a few stocks on your own, though, one or more may turn out to be stinkers, though -- that happens to the best of us, even Warren Buffett. But most of us aren't really savvy stock pickers, with a deep understanding of how to evaluate stocks. So we might wisely choose to stick with a broad index fund of stocks, instead.
If you're thinking of a Dow Jones Industrial Average fund, perhaps think twice -- because "the Dow" only features 30 stocks. Instead, consider the Vanguard S&P 500 Growth ETF. Here's why.
Image source: Getty Images.
What's the Vanguard S&P 500 Growth ETF?
This investment is an exchange-traded fund (ETF) -- a security that's a lot like a mutual fund, but that trades like a stock. It's also very much like a standard S&P 500 index fund, which is invested in 500 of America's biggest companies. But it has a twist: It starts with the universe of S&P 500 companies -- and then only invests in the faster-growing ones. As of the end of July, it held 232 different stocks.
Thus, the Vanguard S&P 500 Growth ETF aims for fatter returns than a standard S&P 500 index fund -- which is itself a perfectly solid long-term grower. The S&P 500 has averaged annual returns close to 10%, ignoring inflation, over long periods, after all, and if it averages even 8% over your investing period, you might amass a fat nest egg like this:
Growing at 8% For: | $7,500 Invested Annually | $15,000 Invested Annually |
|---|---|---|
5 years | $47,519 | $95,039 |
10 years | $117,341 | $234,682 |
15 years | $219,932 | $439,864 |
20 years | $370,672 | $741,344 |
25 years | $592,158 | $1,184,316 |
30 years | $917,594 | $1,835,188 |
35 years | $1,395,766 | $2,791,532 |
40 years | $2,098,358 | $4,196,716 |
Data source: Calculations by author.
How has the Vanguard S&P 500 Growth ETF performed?
Here's the ETF's performance compared with its sister fund, the Vanguard S&P 500 ETF (NYSEMKT: VOO).
ETF | 3-Year Avg. Annual Return | 5-Year Avg. Annual Return | 10-Year Avg. Annual Return |
|---|---|---|---|
Vanguard S&P 500 Growth ETF | 5.92% | 15.93% | 14.18% |
Vanguard S&P 500 ETF | 8.84% | 14.82% | 12.66% |
Data source: Morningstar.com as of Sept. 11, 2024.
Clearly, focusing on faster-growing companies can help the ETF perform better. You'll notice, though, that even a basic S&P 500 index fund is a solid performer -- and can truly be all you need in order to amass a war chest for retirement.
What's in the Vanguard S&P 500 Growth ETF?
Here are the recent top 10 holdings of the fund, along with how much of the fund's value each stock represents:
Stock | Percent of ETF |
|---|---|
Apple | 12.28% |
Microsoft | 11.93% |
Nvidia | 11.04% |
Amazon.com | 4.43% |
Meta Platforms | 4.17% |
Alphabet Class A | 3.87% |
Alphabet Class C | 3.25% |
Broadcom | 2.80% |
Tesla | 2.58% |
Eli Lilly | 2.57% |
Data source: Vanguard.com. As of July 31, 2024.
Note that while the fund holds more than 200 stocks, much of its value is from its top few holdings. Indeed, the top 10 holdings recently represented fully 59% of its total assets.
There's a good chance that you'll look at the 10 top holdings and will see at least a handful that you'd love to own -- such as the Magnificent Seven: Apple, Microsoft, Google parent Alphabet, Amazon, Nvidia, Facebook parent Meta Platforms, and Tesla. Well, investing in this ETF will make you a part owner in them!
Another way to review a fund's holdings is to see how it's invested by sector. Here are the top four sectors where the Vanguard S&P 500 Growth ETF has allocated its assets:
Sector | Weight in ETF |
|---|---|
Technology | 51.3% |
Communication Services | 12.6% |
Consumer Cyclical | 11.9% |
Healthcare | 7.2% |
Data source: Morningstar.com.
If you're looking to invest in stocks and aren't sure where to start, forget the Dow with its mere 30 companies and look instead to a broader index fund -- such as the Vanguard S&P 500 Growth ETF. Remember, too, that there are plenty of other ETFs with impressive track records.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Selena Maranjian has positions in Alphabet, Amazon, Apple, Broadcom, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool recommends Broadcom and 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.
