Investing in the stock market can help build life-changing wealth, and exchange-traded funds (ETFs) are a fantastic way to invest with minimal effort.
Each ETF contains dozens or even hundreds of stocks, all bundled into a single investment. Some funds, such as S&P 500 ETFs track the broader market, while others track specific sectors or other niche categories of stocks.
Investing in just one ETF gives you access to many stocks at once. This significantly reduces your risk compared to buying just one or two stocks, and makes it much easier (and less expensive) to build a well-diversified portfolio.
While there are tons of ETFs to choose from, there’s a powerful Vanguard ETF that can make you $1 million without lifting a finger.
Balancing risk and return
The Vanguard Growth ETF (NYSEMKT:VUG) can be an exceptional investment for those looking to increase their savings while limiting risk.
Growth ETFs are generally designed to beat the market. The Vanguard Growth ETF contains 208 stocks with potential for above-average growth, and while these stocks cover around a dozen industries, around 56% of the fund is spread across stocks in the technology sector.
The downside to growth ETFs is that they tend to carry more risk than broad-based funds like S&P 500 ETFs. Growth stocks are often more volatile than their more established counterparts, and while they can produce above-average returns, there is no guarantee that they will actually beat the market.
VUG in particular aims to mitigate some of this risk with its mix of blue-chip stocks and smaller growth stocks. The fund’s top 10 holdings make up about half of its total composition, and these stocks come from large companies like Apple, AmazonAnd Microsoft. Although these companies still suffer from volatility, the likelihood of long-term growth is far greater.
So the rest of the fund consists of almost 200 smaller stocks that have the potential for explosive growth. These stocks are riskier than the top 10 giants, but if any of them become superstars, you could reap significant returns.
Reaching $1 million or more
Compared to broad-based funds, growth ETF returns can be more unpredictable. Again, growth stocks are often more volatile, so while they can perform significantly better than the market in strong economic times, they are generally hit hard in downturns.
Over the past 10 years, the Vanguard Growth ETF has delivered an average return of just over 15% per year – well above the historical market average of 10% per year. Whether it will be able to sustain these returns in the future is unclear. So, to be on the safe side, we will assume that there is a chance that your investment could produce lower returns in the future.
Let’s say you invest $200 per month in this ETF. Here’s a rough idea of how much you could earn over time, depending on whether you earn an average annual return of 10%, 12%, or 15%.
|
number of years |
Total Portfolio Value: 10% Avg. Annual return |
Total Portfolio Value: 12% Avg. Annual return |
Total Portfolio Value: 15% Avg. Annual return |
|---|---|---|---|
|
20 |
$137,000 |
$173,000 |
$246,000 |
|
25 |
$236,000 |
$320,000 |
$511,000 |
|
30 |
$395,000 |
$579,000 |
$1,043,000 |
|
35 |
$650,000 |
$1,036,000 |
$2,115,000 |
Data source: Author’s calculations via investor.gov.
To reach $1 million, you must invest consistently for 35 years while earning an average annual return of 12%. Or if this ETF manages to generate an average annual return of 15% over the long term, you may be able to achieve that goal within 30 years.
Increasing your monthly contributions can also help you earn more, or you can simply give your money more time to grow. If you start investing as early as possible, it will be easier to generate a significant amount of money.
Growth ETFs tend to be riskier than broad-based funds and are therefore not suitable for everyone. However, if you’re willing to take on more risk for potentially lucrative returns over time, the Vanguard Growth ETF could be a fantastic addition to your portfolio.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Katie Brockman holds positions in the Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool holds positions in and recommends Amazon, Apple, Microsoft, and Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.
1 Unstoppable Vanguard ETF That Could Help You Reach $1 Million Almost Effortlessly was originally published by The Motley Fool