Do you want to have a million dollars by retirement? Most of us probably think that would be great -- though some think a million dollars won't be enough. That's very possibly true, especially if you're still young. Over time, inflation eats away at our dollars' purchasing power, requiring greater incomes for those who want to maintain a certain standard of living.
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Three great index funds
However much you need to retire comfortably, a solid strategy for getting there is investing in index funds. Here are three compelling ones and their performance over time:
|
ETF |
3-Year Avg. Annual Return |
5-Year Avg. Annual Return |
10-Year Avg. Annual Return |
|---|---|---|---|
|
Vanguard S&P 500 ETF (VOO -1.04%) |
10.55% |
15.91% |
13.57% |
|
Vanguard S&P 500 Growth ETF (VOOG -1.43%) |
8.75% |
18.42% |
15.60% |
|
Vanguard Information Technology ETF (VGT -1.56%) |
12.50% |
23.20% |
21.20% |
Source: Morningstar.com as of Dec. 12, 2024.
The table above tells you a lot. Clearly, the first fund, a simple S&P 500 index fund, has an impressive growth rate. But in large part, that's because there have been some boffo years recently. Over many decades, the S&P 500 has averaged a still-respectable annual growth rate of roughly 10%. So, don't expect numbers like those above -- unless you get lucky.
The next two funds have fatter returns, but they do come with a bit more risk. And the overall best-performing one turned in the worst return over the past three years. So, don't count on any guarantees. Still, each of these funds has a low annual fee, and they're fine exchange-traded funds (ETFs) worth considering for your long-term portfolio.
Here's how they might help you amass a million dollars -- or more:
|
$10,000 invested annually and growing for |
Growing at 10% |
Growing at 15% |
|---|---|---|
|
10 years |
$175,312 |
$233,493 |
|
15 years |
$349,497 |
$547,174 |
|
20 years |
$630,025 |
$1,178,101 |
|
25 years |
$1,081,818 |
$2,447,120 |
|
30 years |
$1,809,434 |
$4,999,569 |
|
35 years |
$2,981,268 |
$10,133,457 |
|
40 years |
$4,868,518 |
$20,459,539 |
Source: Calculations by author.
Note that if you want to amass a million dollars or multiple millions, it will likely take decades.
1. Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF contains the same (or roughly the same) holdings as the S&P 500 index -- and it should, therefore, deliver roughly the same returns to you. Since an S&P 500 index fund spans some 500 companies, it offers instant diversification. The S&P 500 includes lots of dividend-paying stocks, too, and the S&P 500 index recently sported a dividend yield of 1.2%.
For most of us, a simple S&P 500 index fund is enough to help us build a war chest for retirement. Even Warren Buffett recommends it, directing that most of the money he leaves his wife be put into one.
Here are the Vanguard S&P 500 ETF's top holdings -- and they'll be the same for just about any other S&P 500 index fund, too:
|
Stock |
Percent of ETF |
|---|---|
|
Apple (AAPL -1.32%) |
7.12% |
|
Nvidia (NVDA -2.09%) |
6.77% |
|
Microsoft (MSFT -1.73%) |
6.26% |
|
Amazon.com (AMZN -1.45%) |
3.61% |
|
Meta Platforms (META -0.59%) |
2.57% |
|
Alphabet Class A (GOOGL -1.45%) |
2.08% |
|
Alphabet Class C (GOOG -1.55%) |
1.72% |
|
Berkshire Hathaway Class B (BRK.B -0.56%) |
1.71% |
|
Broadcom (AVGO -1.47%) |
1.64% |
|
Tesla (TSLA -4.95%) |
1.44% |
Source: Morningstar.com. As of Oct. 31, 2024.
Interestingly, note that the list above includes all of the "Magnificent Seven": Apple, Microsoft, Google parent Alphabet, Amazon.com, Nvidia, Facebook parent Meta Platforms, and Tesla. If you ever wished you owned some or all of those powerful growers, you'll get them all in an S&P 500 index fund -- and you'll get most or all in the two other funds below, as well.
2. Vanguard S&P 500 Growth ETF
The Vanguard S&P 500 Growth ETF is essentially a variation on an S&P 500 index fund: It chooses its components by starting with the S&P 500 companies -- and then only invests in the faster-growing ones. (As of the end of October, it held 234 different stocks.)
Thus, it aims for faster growth than a standard S&P 500 index fund -- which is already a solid long-term grower. Below are the recent top-10 holdings of the fund:
- Apple
- Nvidia
- Microsoft
- Amazon.com
- Meta Platforms
- Alphabet (Class A and Class C)
- Broadcom
- Tesla
- Eli Lilly
They're nearly the same as the S&P 500's top 10, but each has a bigger weighting in the fund, as there are fewer components.
3. Vanguard Information Technology ETF
The Vanguard Information Technology ETF is another large fund, sporting 314 holdings as of the end of October. It tracks an index reflecting the return of stocks in the information technology (IT) sector. Here are its recent top-10 holdings:
- Apple
- Nvidia
- Microsoft
- Broadcom
- Salesforce
- Oracle
- Advanced Micro Devices
- Cisco Systems
- Adobe
- Accenture PLC
Note that roughly 45% of the fund is invested in the top three holdings above, another 4.5% is in Broadcom, and less than 2% is invested in the rest of the holdings. So, you need to have a lot of faith in Apple, Nvidia, and Microsoft to invest in this ETF.
Regardless of what you invest in, be sure to take the time to develop a solid retirement plan -- and then stick to it, saving and investing effectively for many years. You might invest in one or more of the ETFs above -- or in other terrific ETFs.
