Investing in the stock market is one of the simplest ways to transform your finances and increase your net worth over time. However, investing in individual stocks often requires significant research, and not everyone has the time or interest to build a personalized portfolio.
Exchange-traded funds (ETFs) can be a more straightforward option for many people. Each ETF contains a variety of stocks, traded together as a group under a single ticker. Some ETFs follow major market indexes, like the S&P 500 (^GSPC 0.92%), while others are designed to track more niche areas of the market.
If you're looking for an ETF that offers a healthy balance of relative safety and growth, this Vanguard fund has outperformed the market and would have nearly quadrupled your money in just the past 10 years.
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Balancing risk and reward
Growth ETFs are designed to beat the market. They contain stocks that have more potential for growth compared to more mature companies, giving you more opportunities for above-average returns. That said, growth stocks often come with increased volatility and risk.
Investing in an ETF can help limit some of that risk. While all of the stocks within the fund may carry higher levels of risk, investing in hundreds of stocks at once creates more diversification. In general, the more variety within your portfolio, the more protected you are against volatility.
One ETF that aims to balance risk with reward is the Vanguard S&P 500 Growth ETF (VOOG 2.03%) -- which is essentially an S&P 500 ETF with a twist. All of the stocks within this fund are from companies listed in the S&P 500. However, rather than including stocks from all 500 companies, this fund only includes the 209 stocks that have the most potential for growth.
The companies within the S&P 500 are among the strongest in the U.S., as there are strict earnings and market cap requirements to make it into the index. This means that by investing in this ETF, you're essentially getting the best of both worlds: the relative safety of investing in S&P 500 companies and the chance to earn higher-than-average returns.
How much could you earn with this ETF?
Historically, the market itself has earned an average rate of return of around 10% per year. Annual returns can vary widely, as stocks are always subject to short-term turbulence. But by investing in an S&P 500 ETF or total stock market ETF, for example, your yearly returns will likely average out to around 10% per year over decades.
The Vanguard S&P 500 Growth ETF has earned an average rate of return of 15.14% per year over the past 10 years and 16.34% per year since its inception in 2010.
If you had invested $5,000 exactly 10 years ago, you'd have around $18,950 by today, as of this writing -- assuming you simply let your money sit and made no additional contributions.
Let's say that this fund continues earning an average return of 15% per year going forward. If you were to invest, say, $100 per month, here's approximately how much you might accumulate over time:
| Number of Years | Total Portfolio Value |
|---|---|
| 20 | $123,000 |
| 25 | $255,000 |
| 30 | $522,000 |
| 35 | $1,057,000 |
Data source: Author's calculations via investor.gov.
Keep in mind that there are never any guarantees when investing, especially when it comes to growth ETFs. The short term can also be incredibly volatile, so your returns could fluctuate significantly from year to year.
If you choose to buy, be sure to stay invested for at least five to seven years -- or, ideally, a couple of decades. The longer you stay in the market, the more you can minimize the effects of volatility.
Whether or not you choose to invest in the Vanguard S&P 500 Growth ETF will depend on your risk tolerance and goals. This fund does carry more risk than a standard S&P 500 ETF, but it's also earned higher returns historically. If you're comfortable taking on slightly higher risk, this ETF could help you build life-changing wealth over time.
