There are plenty of ways to generate wealth, but investing in the stock market is one of the easiest. You don't need to be rich to make a lot of money investing, and you also don't need to be experienced in the stock market. All you need is the right investment.
While there are countless stocks and funds to choose from, some investments are better than others. Growth ETFs can be a smart option for many people, and if you invest consistently enough, they could even help you reach multimillionaire status.
Not all growth ETFs are created equal, but there's one fund, in particular, that could be a wise addition to your portfolio: the Vanguard Growth ETF (NYSEMKT: VUG).
Why invest in a growth ETF?
An exchange-traded fund (ETF) contains multiple stocks bundled together into one investment. Some ETFs track broad indexes, like the S&P 500, and include stocks from a wide variety of industries. Others only include stocks from a certain sector, such as the tech or healthcare industry.
A growth ETF, then, only includes stocks that have the potential for rapid growth. The primary advantage of this type of ETF is that there's a better chance of earning higher-than-average returns and beating the market. The downside is that high-growth stocks tend to be more volatile, so you could see more ups and downs in the short term with this type of investment.
That said, the best way to make money in the stock market is to hold your investments for as long as possible. Though growth ETFs may experience short-term volatility, the best funds are likely to see positive returns over the long run.
The Vanguard Growth ETF: Pros and Cons
The Vanguard Growth ETF is a solid choice for a few reasons. For one, it was established in 2004, giving it a relatively long track record compared to other ETFs.
This fund has also seen its fair share of turbulence, including the Great Recession and the market crash in the early stages of the COVID-19 pandemic. Yet it's still managed to earn an average rate of return of close to 12% per year since its inception. In other words, all the highs and lows it's experienced over time have averaged out to around 12% per year.
With 285 stocks, this fund also provides a good amount of diversification. Roughly three-quarters of the stocks in this ETF are from the tech and consumer discretionary industries, however, which does increase your risk slightly. When the majority of your stocks are centered around just one or two sectors, your investments are less diversified and subject to more risk.
For that reason, it's wise to make sure you have a strong core portfolio if you choose to add a growth ETF to the mix.
Reaching multimillionaire status
While growth ETFs can sometimes be more volatile than broad-market funds, they also make it easier to build a million-dollar portfolio. The key is to invest consistently and give your money as many years as possible to grow. With enough time, the sky is the limit as to how much you could earn.
Since its inception, the Vanguard Growth ETF has earned an average rate of return of around 12% per year. Say you can afford to invest $400 per month, and you're earning a 12% average annual return. Here's approximately how much you could earn over time:
|Number of Years||Total Savings|
Although it does take decades to see a significant amount of growth with this ETF, keep in mind that this investment requires very little effort on your part. All you need to do is invest as much as you can afford, and the ETF will take care of the rest.
Choosing the right investments is key to making money in the stock market. But when you have a solid portfolio, the possibilities are endless. By investing just a little money each month, you could potentially become a multimillionaire someday.
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Katie Brockman owns shares of Vanguard Growth ETF. The Motley Fool owns shares of and recommends Vanguard Growth ETF. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.