The S&P 500 is heading for its third straight annual gain, and growth stocks have powered this spectacular performance. These players have thrived in an environment of optimism about technology like artificial intelligence (AI) and quantum computing, and the lower interest rate backdrop also has offered them a boost. (Lower rates mean better borrowing conditions for growth companies -- and often improved financial situations for their customers.)
Though growth stocks, overall, have climbed over the past few years, it’s not too late to get in on these players. For two reasons. First, it’s possible they will continue to climb in the new year, as bull markets historically have lasted longer than bear markets. Second, growth stocks are always a welcome addition to a portfolio because, buoyed by explosive growth during favorable periods, they may help drive gains over time.
And right now, for less than $500, you can get in on an asset that allows you to bet on some of the market’s most exciting growth stocks. Let’s check out this no-brainer buy.
Image source: Getty Images.
Adding diversification to your portfolio
I’m talking about an exchange-traded fund (ETF), which is a fund that invests in a broad range of stocks according to a particular theme -- in this case, growth. These funds are fantastic because they allow you to immediately add diversification to your holdings with one simple purchase. I like diversification because at times when one stock or industry may suffer, better performance from stocks in other sectors may compensate.
ETFs are easy to buy as they trade on the market daily, just like stocks -- the one main difference to note when investing in an ETF is that they come with fees. These are expressed through an expense ratio, and to ensure that you maximize your gains over the long run, be sure to choose ETFs with expense ratios of less than 1%. The particular ETF that I’m going to talk about here -- iShares S&P 500 Growth ETF (IVW +1.20%) -- has an expense ratio of 0.1%, so it largely fits the bill.
The iShares fund tracks the S&P 500 Growth Index, meaning it replicates the composition and performance of this benchmark. It holds shares of more than 200 stocks in 11 industries, and the most heavily weighted are technology, representing 40% of the fund, followed by communications, consumer discretionary, and financials -- they’re weighted at about 16%, 12%, and 10%, respectively.
NYSEMKT: IVW
Key Data Points
Nvidia, Apple, Microsoft
Unsurprisingly, the fund’s biggest holdings are the tech giants that have driven broader market gains in recent years: Nvidia, Apple, and Microsoft take the first three spots, but healthcare giant Eli Lilly, which has become a growth stock in recent years, is also among the top 10 holdings.
What I like about investing in such an ETF is you’re always exposed to the key growth players of the moment -- that’s because its index of reference rebalances periodically to guarantee that it’s including the day’s top growth players, and the ETF must follow. So, as an investor, you don’t have to do the heavy lifting, and instead, you can sit back and rest assured that you’re betting on the best growth stocks out there.
The iShares S&P 500 Growth ETF has outperformed the S&P 500 over the past decade, demonstrating that it’s a great idea to invest in growth stocks throughout market environments -- and hold on for the long term.
Right now, you can pick up a share of the iShares ETF for about $122 -- you can start off with just one, or with $500, you can buy a few shares of this fund. So, you don’t need a huge initial investment to get in on this growth opportunity -- and you might also consider adding to your position over time to increase your exposure and potential for gains.
In any case, whether growth stocks continue to roar higher in the coming months or if they take a pause, history shows us that the iShares growth ETF has delivered fantastic long-term returns -- and that makes it a no-brainer asset to buy and hold right now.
