Just about all of us would like to have more money -- and, ideally, a lot more money. Yes, you might reach that goal by winning a Powerball jackpot, but that's not likely to happen. (The odds of winning it were recently 1 in 292,201,338!) A much better way to try to reach your financial goals is to invest in the stock market.
For best results, most of us should be investing regularly and effectively. Regularly means contributing meaningful sums -- such as 10% of your income, but ideally more -- and doing so every month, every quarter, or every year, for lots of years.
Image source: Getty Images.
To get an idea of what's possible when you do so, here's a look at three exchange-traded funds (ETFs) with impressive track records. Each of them could turn a monthly $600 investment into $1.6 million (or more!) over 25 years.
Meet the ETFs
Without further ado, here are the three ETFs you might consider for your portfolio, and how they've performed over the past five and 10 years. (Note that their "expense ratio" is essentially the annual fee that they charge. An expense ratio of 0.1% means that for every $1,000 you invest, you'll pay about $1 per year.)
|
Fund |
Expense Ratio |
5-Year Avg. Annual Return |
10-Year Avg. Annual Return |
|---|---|---|---|
|
Vanguard S&P 500 Growth ETF (VOOG 0.16%) |
0.1% |
17% |
14.4% |
|
Vanguard Information Technology ETF (VGT -0.11%) |
0.1% |
24.1% |
20.4% |
|
iShares Semiconductor ETF (SOXX -1.00%) |
0.35% |
33.2% |
25.3% |
Data source: Morningstar.com, as of June 3, 2024.
Here's a quick intro to each:
- Vanguard S&P 500 Growth ETF: This ETF invests in the growth stocks of the S&P 500. So whereas the S&P 500 encompasses 500 of America's biggest companies (many of them stellar long-term performers), this ETF recently held about 230 stocks. It can be more volatile than the S&P 500, but it tends to deliver higher returns over time. Its top holdings recently included Microsoft (12.5% of the fund), Apple (10.7%), and Nvidia (9.2%).
- Vanguard Information Technology ETF: As its name suggests, this ETF focuses on the information technology sector, so you won't find companies such as Walmart or Nike among its holdings. It recently encompassed about 312 stocks, with its top holdings being Microsoft, Apple, and Nvidia, along with Broadcom and Salesforce.com.
- iShares Semiconductor ETF: This is another sector-focused ETF, specializing in semiconductor companies and recently encompassing only 30 companies, such as Nvidia, Qualcomm, Broadcom, and Advanced Micro Devices.
While these are very promising ETFs, be sure to read up and learn more about any sectors in which you're investing heavily. You don't want to have, say, 40% of your holdings in a sector that implodes -- or in a sector you don't understand very well.
It's smart to diversify, too, and the Vanguard S&P 500 Growth ETF above will diversify your dollars the most, although it, too, will be excluding small companies and slower-growing companies.
How your money can grow
Now let's look at what these ETFs, or ETFs like them, can do for your portfolio. There's no way to know for sure what kind of return any of them will deliver in the future, so let's try to be a bit conservative in our speculation. Let's use the lowest average annual growth rate in the table up top -- 14.4%.
And let's look at two scenarios -- someone investing $600 per month ($7,200 annually) and someone investing $1,000 per month ($12,000 annually). Your own situation is likely to be different, but you can adjust the numbers below accordingly.
|
Growing at 14.4% For: |
$7,200 Invested Annually |
$12,000 Invested Annually |
|---|---|---|
|
5 years |
$54,879 |
$91,466 |
|
10 years |
$162,412 |
$270,687 |
|
15 years |
$373,115 |
$621,858 |
|
20 years |
$785,973 |
$1,309,954 |
|
25 years |
$1,594,939 |
$2,658,232 |
|
30 years |
$3,180,054 |
$5,300,090 |
|
35 years |
$6,285,978 |
$10,476,630 |
|
40 years |
$12,371,823 |
$20,619,706 |
Data source: author.
Those are some breath-taking numbers. Know that you can also achieve a hefty nest egg with less volatility by just sticking with a simpler, low-fee, broad-market ETF, such as the Vanguard S&P 500 ETF (VOO 0.14%). It has averaged 12.7% annual gains over the past decade. If you do so and only average 8% growth, you can still do quite well:
|
Growing at 8% For: |
$7,200 Invested Annually |
$12,000 Invested Annually |
|---|---|---|
|
5 years |
$45,619 |
$76,032 |
|
10 years |
$112,648 |
$187,746 |
|
15 years |
$211,134 |
$351,892 |
|
20 years |
$355,845 |
$593,076 |
|
25 years |
$568,472 |
$947,452 |
|
30 years |
$880,890 |
$1,468,150 |
|
35 years |
$1,339,935 |
$2,233,226 |
|
40 years |
$2,014,423 |
$3,357,372 |
Data source: author.
The hardest part about achieving the kind of wealth in the tables above is sticking to your plan. Understand that your net worth won't grow in a straight line. The market has upturns and downturns, but it has always recovered from big and small drops and gone on to set new records.
Trust in the math, be diligent for a long, long time, and you're likely to do quite well. It's also good to keep reading and learning about investing, in order to develop more confidence in what you're doing.
