Over many decades, the stock market has averaged annual returns of close to 10%. That's pretty good! (Of course, over shorter periods, it can average much more -- or less.) It makes good sense for most investors to park much, if not most, of their moola in one or more simple, low-fee index funds, such as one that tracks the S&P 500.
Even Warren Buffett has recommended index funds for most people, and index funds can be all you need to get rich.
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But what if you want to aim for higher returns? What if you're willing to read up on investing and become skilled at studying companies? What if you'd like to choose some individual growth stocks in which to invest? Well, then, here are some portfolio candidates to consider.
1. Nvidia
Any list of promising growth stocks almost seems incomplete without Nvidia (NVDA -2.09%), because it's been a phenomenal performer. As I type this, it has tripled in value over the past year, and has averaged annual gains of 75% over the past decade. This torrid pace of growth isn't likely to continue as the company gets even more huge, but there's still plenty of growth potential ahead, and, surprisingly, the stock is arguably still reasonably valued -- with a recent forward-looking price-to-earnings (P/E) ratio of 34, below the five-year average of 41.
Nvidia is a dominant player in the semiconductor arena. It used to be known as primarily a gaming chip maker, but it's now also quite focused on data centers, which need more and more chips to support the boom in artificial intelligence (AI) technology.
2. PayPal
PayPal (PYPL -1.45%) is another growth stock to consider. It, too, is sporting an appealing valuation, with its forward P/E of 18 below the five-year average of 21. You're probably very familiar with the fintech company's PayPal service, which facilitates digital financial transactions. There's more to PayPal, though: It's also home to businesses such as Venmo, Braintree, Paidy, Hyperwallet, and Zettle, among others.
It recently boasted 426 million active customer and merchant accounts and 25 billion annual transactions. In its third quarter, revenue grew 6% year over year, with payment volume up 9%. PayPal's growth has slowed lately, especially in terms of gaining new customers. It's been rolling out new features, such as its FastLane and Cash Pass rewards program, and expanding its buy now, pay later feature.
A terrific performance going forward isn't guaranteed, but it's certainly possible, with the company aiming to boost its growth and profit margins and upping its projections. Dig into PayPal to see what you think. You might want to buy now, buy a partial position now, or just add the company to your watch list.
3. Shopify
Shopify (SHOP -1.62%) is known for working behind the scenes, offering a platform that helps people "achieve independence by making it easier to start, run, and grow a business" -- specifically, an e-commerce business. It's been posting solid gains, too, up close to 50% so far this year and averaging annual gains of more than 25% over the past five years.
Shopify's third quarter was impressive, with CFO Jeff Hoffmeister noting that "Shopify achieved 26% revenue growth and 19% free cash flow margin this quarter, marking our sixth consecutive quarter of greater than 25% revenue growth excluding logistics." The company has been inking some strategic partnerships -- even with PayPal -- lately.
The shares are priced appealingly, too, with a recent forward P/E of 56 well below the five-year average of 142. (Such a high average suggests that the stock has been richly valued over multiple years.)
4. Vanguard Information Technology ETF
Lastly, here's a pick that's not exactly a common stock -- it's an exchange-traded fund (ETF) -- a fund that trades like a stock. So you can buy shares of it from any good brokerage. The Vanguard Information Technology ETF (VGT -1.56%) is a powerful ETF that gives you easy access to more than 300 stocks, each of which is in some way high-tech. Its top holdings include several of the "Magnificent Seven" stocks, such as Microsoft, Apple, and Nvidia.
If you're not yet intrigued, consider its performance. Over the past five years, it has averaged annual gains of 23.5%. Over the past decade and past 15 years, its average annual gains have been 21% and 19%, respectively. It's up close to 33% year to date, as of this writing. The ETF will not always have such amazing returns. When the market pulls back, as it always does now and then, the ETF will take a hit. But if you're bullish on the technology sector's long-term potential, consider adding some shares of this high-performance ETF to your long-term portfolio.
Remember, too, that if you're not comfortable picking stocks on your own and you fear the Vanguard ETF might be too volatile, you can do well with a simple S&P 500 index fund, too.
