Why the Vanguard Growth ETF is a great option for long-term investors.
One of the best ways to build wealth is through investing, and whether you are a new investor or an experienced one, exchange-traded funds (ETFs) that track major market indexes can be solid core holdings. The great thing about index ETFs is that they are great buy-and-hold investments that you can hold on to for a lifetime and continue to invest more money into throughout the years. One great option in this category is the Vanguard Growth ETF (VUG 0.16%).
Let’s look at three reasons why this is a great ETF to buy and hold for a lifetime.
1. It has low expenses
The fees that come with investing in an ETF can eat into your returns over the long run, costing you money. That is why it is generally good to stick to investing in ETFs with low expense ratios.
Now, a 1% fee may not sound like much, but according to a report by the Securities and Exchange Commission (SEC), a 1% annual fee would reduce your portfolio value by $30,000 over 20 years on a $100,000 investment with a 4% annual return compared to an investment with a 0.25% annual fee. An investment with a 0.5% fee would cost you $10,000 compared to an investment with a 0.25% annual fee.
Given that most index funds have an average annual return of more than 4% a year, the gap in real life would be considerably more. That’s because as the investment grows, the absolute dollar amount paid in fees each year increases. For example, 1% on $100,000 is $1,000, but if that investment eventually grows to $500,000 that annual fee is suddenly $5,000.
Fortunately for investors in the Vanguard Growth ETF, the fee is very low, at a minuscule 0.04%, so investors get to keep virtually the entire gains that the ETF produces for themselves.
2. It has a history of outperformance
The Vanguard Growth ETF is similar to the more well-known Vanguard S&P 500 ETF, except it tracks the CRSP US Large Cap Growth Index, which is basically the growth side of the S&P. Even better, the Vanguard Growth ETF has a long history of outperformance.
Over the past 10 years, the Vanguard Growth ETF has produced an average annual return of 15.5% as of the end of September. A $10,000 investment would be worth nearly $42,400 today. By comparison, the Vanguard S&P 500 ETF has generated an average annual return of 13.3% over the same period, which would make a $10,000 investment worth nearly $35,000 today.
The Vanguard Growth ETF’s outperformance has been even more pronounced recently, with the ETF up an average of 19% over the past five years. That compares to an average annual return of 15.9% for the S&P 500 ETF over the same period.
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3. It’s weighted toward technology stocks
While the Vanguard Growth and S&P 500 ETFs share most of the same top-10 holdings, one of the big differences between the two is that the weighting of these top holdings tends to be much higher in the Vanguard Growth ETF. For example, Apple, Microsoft, and Nvidia are the top three holdings in both ETFs, but they represent 36% of the Growth ETF versus 19.7% for the S&P 500 ETF.
Overall, the Vanguard Growth ETF is much more heavily weighted toward technology stocks, with nearly 60% of its portfolio in the sector compared to about 31% for the S&P 500 ETF. This is why I’m a fan of owning the Vanguard Growth ETF over the long haul.
Like the S&P 500 ETF, the Growth ETF tracks a market-weighted index, which means that the larger the company, the bigger the part of an index it generally is. The great thing about index investing is that it lets its winners run, so as stocks perform well and companies grow bigger, they become larger and larger percentages of the portfolio.
Now, there is a reason why tech stocks dominate the top holdings of these ETFs, and that is because tech companies have shown the ability to become the largest and most dominant companies on the planet time and again. I do not see this changing in the next 10 to 20 years, as companies continue to ride the newest technologies, including artificial intelligence (AI), to grow.
As technology continues to lead the way forward, I want to be invested in an ETF that is overweight the tech sector over the long run. As such, I view the Vanguard Growth ETF as a great investment option that can be bought and held over a lifetime.
Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, Vanguard Index Funds-Vanguard Growth ETF, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
