In general, there are two main types of investing: value investing and growth investing. The former centers around finding out-of-favor stocks trading below their intrinsic value, while the latter is focused on finding stocks with strong growth potential.
When it comes to exchange-traded funds (ETFs), I prefer index ETFs that focus on growth stocks. The reasons are simple: First, index funds tend to have the lowest expenses. High expenses, even something as seemingly low as 1%, will eat into returns over time.
Second, market-weighted indexes tend to outperform actively managed funds by letting their mega-winners run and become larger parts of the index. These mega-winners generally tend to be classified as growth stocks, and nothing can send a stock higher than earnings and revenue growth.
Just look at how Nvidia's huge revenue and earnings growth the past few years catapulted it to become one of the largest companies in the world.
When scanning the S&P 500 index's top 10 holdings, eight are classified as growth stocks by the Center for Research in Security Prices (CRSP), which tracks the history of stock prices. And many of the largest value stocks were once growth stocks.
With that, let's look at two strong growth-focused ETFs to buy and hold for a very long time.
Vanguard Growth Index Fund
For investors who want to invest in an S&P Index ETF, but without the value stocks, the Vanguard Growth Index Fund ETF (VUG -1.43%) is a great option. It tracks the CRSP U.S. Large Cap Growth Index, which is essentially the growth side of the S&P.
Like most Vanguard ETFs, it has a super-low expense ratio: just 0.04%. So investors get to replicate the index's returns nearly perfectly. Meanwhile, the fund is heavily weighted toward the technology sector, at 58% of the portfolio, while consumer discretionary stocks make up another 18%.
The fund has been a great performer over time, with an average annual return of 15.6% over the past decade as of the end of November. That equals a 326% cumulative return, meaning a $200 investment 10 years ago would now be worth over $850.
The ETF's returns have been even stronger in recent years, with an average annual return of 31.8% the past three years and 37.7% over the past year as of the end of November.
Apple, Nvidia, Microsoft, and Amazon currently make up more than 39% of the fund, so as long as these companies continue to benefit from the artificial intelligence boom, the ETF should continue to be a nice winner.
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Invesco QQQ ETF
Another great growth-focused index ETF is the Invesco QQQ Trust (QQQ -1.33%). It tracks the Nasdaq 100 index, which consists of the 100 largest nonfinancial companies that trade on the Nasdaq Stock Exchange.
The ETF has a bit higher expense ratio than the Vanguard Growth Index, but it is still low at 0.2%. The fund is even more weighted toward technology, with about 60% of its holdings in the sector. Consumer discretionary stocks make up another 18% of the ETF.
Apple, Nvidia, Microsoft, and Amazon also make up its top four holdings, but at a slightly lower percentage of the portfolio at about 30.5%, versus the 39% in the Vanguard fund.
The Invesco QQQ ETF has been a very strong performer, with an average annual return of 18.3% over the past 10 years, as of the end of September. Taking it through November, its cumulative return is 421.5% -- meaning a $200 investment would now be worth $1,043. The ETF is up 32% over the past year, through November.
Since its inception in March 1999 through September 2024, the ETF has a 1,025.2% return compared to 619.3% for the S&P 500. Not many active funds beat the S&P 500, so that is an impressive feat.
Start with $200 and add more
The Vanguard Growth ETF and Invesco QQQ ETF are both great growth investments. That said, one of the keys with ETFs is to be consistent.
So even if you start with a small amount, such as $200, you should try to consistently buy into these ETFs through a dollar-cost averaging strategy. This could mean $200 every week or every month, but the key is continuing to invest in good markets and bad.
Over a long period of time, history says you'll be quite happy with the results and a lot wealthier than when you started.
