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When we talk about the stock market, investors think: S&P500 as an important barometer of how things are progressing. The index tracks the 500 largest and most profitable companies in the world’s most dominant economy, the United States, so investors keep a close eye on its price movements.
Historically, the S&P 500 has been such a good investment that even Warren Buffett recommends that most people put their money into an index fund that follows the S&P 500. Over the past 20 years, the return on the broad market index, including dividends, has been approximately 10.2% per year, and an initial investment of $10,000 equates to $69,200.
There’s no denying how great this kind of profit is. However, there is no doubt that some investors are expecting even greater returns. You can definitely outperform the S&P 500. You should consider purchasing this. Exchange Traded Fund (ETF) (ETF) instead.
Focus on growth businesses
In subsequent 5, 10, 15, and 20 year periods, Vanguard Growth ETF (NYSEMKT: VUG) This is a remarkable achievement. And long enough to be confident that this streak can continue for years to come. That same $10,000 initial investment in this ETF over the past 20 years would have a final value of more than $88,430 for him.
The Vanguard Growth ETF contains 208 stocks. Compared to the average company out there, these companies typically report faster sales and earnings growth. Over the past five years, the average company participating in this fund has grown its earnings by an impressive 19.6% per year.
But investors have to pay a price for this kind of performance.average price vs. revenue The Vanguard Growth ETF’s P/E ratio of 37.3x is much higher than the S&P’s P/E ratio of 23.2x.
It is important to understand the composition of this ETF. With growth being the main focus and objective, it’s not too surprising that 55.8% of the holdings are from the Technology sector and 20% from the Consumer Goods sector. These industries show much greater growth potential than sectors such as financial services, utilities, and industrials.
Given the bias towards the technology sector, the so-called “Magnificent Seven“Business is remarkable. apple, Amazon, alphabet, microsoft, meta platform, teslaand Nvidia It accounts for a whopping 52% of the entire Vanguard Growth ETF. These stocks have soared in recent years.
Some risk-averse investors may not feel comfortable owning this type of company. Because these companies operate in a variety of rapidly changing industries, including e-commerce, cloud computing, digital advertising, electric vehicles, semiconductors, enterprise software, and consumer electronics. However, the opportunity to earn higher returns makes up for it.
Please keep this in mind
In addition to its constituent stocks and past returns, investors should also pay attention to other factors. The Vanguard Growth ETF has a very low expense ratio of 0.04%, allowing investors to lock in more returns over the long term. It should also give you some peace of mind knowing that Vanguard is a reputable company with nearly 50 years of history under his belt and trillions of dollars under management.
If possible, standard best practices are: dollar cost average. Adding savings on a regular basis will greatly increase your profits over time. Additionally, you no longer need to time the market.
I see no reason why you can’t own both the Vanguard Growth ETF and the S&P 500 fund, as well as other investment vehicles aimed at other objectives, in a complete, well-diversified portfolio. When investing, always remember to maintain a long-term horizon.
Should I invest $1,000 in Vanguard Index Fund – Vanguard Growth ETF right now?
Vanguard Index Fund – Before purchasing Vanguard Growth ETF shares, consider the following:
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Neil Patel has no position in any stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla, and Vanguard Index Funds (Vanguard Growth ETF). The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
You can outperform the S&P 500. Buy this ETF instead.Originally published by The Motley Fool
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