As the stock market continues to surge, right now can be a fantastic time to invest. The current bull market is still going strong, and the S&P 500 (^GSPC -1.11%) has soared by nearly 26% so far this year.
If you're looking for a simpler way to supercharge your savings, investing in an exchange-traded fund (ETF) can be a smart choice. An ETF is a collection of stocks bundled into a single investment, providing exposure to hundreds of companies with very little effort.
The right ETF for you will depend on a variety of factors, like your risk tolerance and overall investing goals. For those looking for a powerhouse growth ETF to potentially turn a few hundred dollars per month into $1 million or more, this investment could get you there while barely lifting a finger.
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A superstar growth ETF with a proven track record
A growth ETF is a fund that only includes stocks with the potential for faster-than-average growth over time. Some are more niche, such as industry-specific ETFs or funds that only include large-cap stocks, while others offer more variety and diversification.
If you're looking for a somewhat safer option, the Vanguard Growth ETF (VUG -1.43%) could be a good fit for your portfolio. This ETF contains 183 stocks from 12 industries, though it's heavily weighted toward the tech sector -- with tech stocks making up nearly 58% of the fund.
One advantage of this particular ETF is that it aims to balance risk and reward. All the stocks within the fund are large-cap stocks, and the median market cap is a staggering $1.4 trillion. The top 10 holdings in this ETF make up over 57% of the entire ETF, and this list includes industry titans like Apple, Microsoft, and Nvidia.
The rest of the fund comprises the other 173 stocks. Not only can investing in more stocks help diversify your portfolio, but it can also increase your chances of buying a winner. If any one of these smaller stocks becomes a powerhouse, it can more than make up for any underperforming stocks in the fund.
This balance of risk and reward can help maximize your earnings while better protecting your savings. Behemoth companies like Apple and Microsoft will likely survive market turbulence, while the smaller stocks have potential for explosive growth.
Building a $1.4 million portfolio
First, it's important to preface that growth ETFs, in general, are higher risk than many other types of funds. While this particular ETF does limit some of that risk, it's still going to be more volatile than, say, an S&P 500 ETF or total stock market ETF.
Before you consider investing, ask yourself whether you're comfortable with that level of volatility. Growth ETFs often earn explosive returns when the market is thriving, but they can also be hit much harder during downturns. If you're uncomfortable with the idea of facing more severe ups and downs, growth ETFs could be a stressful investment.
That said, this type of investment could also help you earn much higher-than-average returns over time. The Vanguard Growth ETF has earned an average rate of return of 15.17% per year over the past 10 years. By comparison, the Vanguard S&P 500 ETF has seen an average return of just 12.96% per year in that time, while the stock market as a whole has earned an average of 10% per year over decades.
Because growth ETFs can be more unpredictable, there are no guarantees that you'll continue seeing 15% average annual returns. But even slightly higher-than-average returns could still earn you a lot of money. If you were to invest $400 per month, here's approximately how much you could accumulate, depending on whether you're earning an 11%, 13%, or 15% average annual return:
| Number of Years | Total Portfolio Value: 11% Avg. Annual Return | Total Portfolio Value: 13% Avg. Annual Return | Total Portfolio Value: 15% Avg. Annual Return |
|---|---|---|---|
| 20 | $308,000 | $389,000 | $492,000 |
| 25 | $549,000 | $747,000 | $1,021,000 |
| 30 | $955,000 | $1,407,000 | $2,087,000 |
Data source: Author's calculations via investor.gov. Table by author.
The most important thing to keep in mind when investing is that a long-term outlook is key, and that's especially crucial with growth ETFs. We're bound to face a downturn sooner or later, and even the most seasoned investors are often shaken by volatility. But by holding your investment for decades, you can ride out the storm and take advantage of long-term gains.
There's no single best way to invest, and everyone's approach will be different. But if you're looking for a lower-effort investment that could help make you a lot of money over time, the Vanguard Growth ETF could be a great option.
