Key Points
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In the past two decades, the Vanguard Growth ETF generated a total return of 1,150%.
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Dollar-cost averaging is a smart strategy that eliminates the need to time the market.
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Investors who choose this ETF are gaining considerable exposure to artificial intelligence.
It’s so easy to get caught up in the day-to-day of market and economic developments. However, this isn’t supportive of lasting success in the stock market.
When investing is done the right way, with a strong focus on the long term, the results can be magnificent. Investors can build substantial wealth by being patient and sticking to their strategies. The numbers back up this claim.
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Just look at what the Vanguard Growth ETF(NYSEMKT: VUG) can do. Investing $100 per month in this growth-focused exchange-traded fund (ETF) could result in a huge $106,000 portfolio in 20 years. Here’s how.
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Look at the past to guide the future
The Vanguard Growth ETF’s performance is noteworthy. In the past two decades, it has generated a total return of 1,150% (as of July 23), translating to an annualized growth rate of 13.2%. This is significantly better than the S&P 500 index’s 786% total return over that same time period.
Past results don’t guarantee future returns. But for the calculation here, let’s simply assume the Vanguard Growth ETF’s trailing 20-year performance repeats itself between now and July 2046. This would certainly be a fantastic outcome.
If you adopt a dollar-cost averaging strategy of allocating $100 monthly into this ETF, you will have $106,000 in two decades. Besides being an extremely consistent approach to investing in the stock market, the beauty of this playbook is that it completely eliminates the need to try to correctly time when to put money to work. Investors remain disciplined through the ups and downs, which is a proven strategy.
Know what you’re investing in
It’s absolutely critical that investors understand the Vanguard Growth ETF’s portfolio breakdown. There are a total of 147 stocks in it. Of the entire asset base, more than 69% is in the technology sector. This might not come as a surprise, given that there are a lot of businesses in these types of industries that are exhibiting above-average revenue and profit gains.
If you own the Vanguard Growth ETF, you’re making a focused bet on the future of artificial intelligence (AI). The biggest bulls believe this technology will lead to a productivity boost that sustainably lifts gross domestic product growth. Others have a more muted view, believing AI is mostly hype right now.
The top three positions account for 32% of the ETF, indicating concentration among the most valuable companies. This list includes Nvidia, Apple, and Microsoft. The performance of these stocks, as well as the entire Magnificent Seven, essentially drives the portfolio.
Keep this structure in mind as you choose what to do with your hard-earned savings.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Vanguard Growth ETF. The Motley Fool has a disclosure policy.
