There are plenty of great exchange-traded funds (ETFs) out there that could help you grow a sizable nest egg for retirement. The Vanguard High Dividend Yield ETF (VYM -0.25%), for example, has a history of providing solid long-term growth plus dividend income, and was recently yielding about 3.2%. The Vanguard Total Stock Market ETF (VTI -0.58%) is a terrific low-fee index fund that will distribute your dollars across just about every publicly traded U.S. company -- morethan 3,600 of them.
Here's another ETF that deserves strong consideration for your portfolio: The Vanguard Growth ETF (VUG -0.96%), which tracksthe CRSP US Large Cap Growth Index.
Image source: Getty Images.
Meet the Vanguard Growth ETF
There are lots of reasons to love this ETF. Let's start with its performance:
ETF | 5-year annual average growth rate | 10-year annual average growth rate | Since inception |
|---|---|---|---|
Vanguard Growth ETF | 21.6% | 16.4% | 11.2% (January 2004) |
Vanguard Total Stock Market ETF | 16.7% | 13.5% | 8.2% (May 2001) |
S&P 500 | 16% | 13.4% | 10% (January 1993) |
Source: Vanguard.com and SSGA.com.
Pretty good, right? It's easy to love average annual gains of 16% or 21% -- but one shouldn't count on them. Remember that the overall stock market has averaged gains close to 10% over long, multidecade periods, but over shorter time frames it can grow more slowly (or briskly). A fund that's managed by people skilled at picking investments that will grow more rapidly than the overall market can get you a long-term average gain topping that 10%, but that's far from guaranteed.
The Vanguard Growth ETF's portfolio -- like the index it is based on -- has a large-cap focus. The median market capitalization of its 250-plus holdings recently was about $236 billion. As of the end of January, it held about nearly 47% of its assets in technology stocks, 23% in consumer discretionary stocks, and 12.2% in industrials. Here's a peek at the ETF's recent top holdings, to give you an idea of how it's pursuing its growth objective:
Stock | Recent market capitalization | Percentage of VUG portfolio |
|---|---|---|
Apple | $2.2 trillion | 11.12% |
Microsoft | $1.8 trillion | 9.65% |
Amazon.com | $1.6 trillion | 7.53% |
$745 billion | 3.42% | |
Tesla | $750 billion | 3.31% |
Alphabet (Class A) | $1.4 trillion | 3.02% |
Alphabet (Class C) | $1.4 trillion | 2.83% |
Visa | $451 billion | 1.74% |
NVIDIA | $370 billion | 1.68% |
The Home Depot | $300 billion | 1.61% |
Source: Morningstar.com.
Low fees and a steady portfolio
Another thing to love about the Vanguard Growth ETF is its low annual fee of 0.04%. Comparable funds charge around 1%, meaning that you'd pay about $100 if you had $10,000 invested in it. The Vanguard ETF would charge you $4. That might not seem like a big difference, but Vanguard points out that with an initial $10,000 investment growing at 9% over 10 years, the lower fee would save you $2,255.
The fund also sports a low turnover rate -- recently, it was 2.7%. This means that the fund's managers aren't shifting their holdings much: A 100% turnover rate would mean that the entire value of the fund had been traded over the past year -- and that would not only suggest a lack of conviction in the fund's holdings, but it could also generate more in trading fees and short-term capital gains (which usually carry higher tax rates). Index funds tend to have low turnover rates because their managers don't actively decide what to buy and sell and when -- instead, they just buy and hold whatever is in the index they're tracking, making adjustments when the index does.
What to do
If you're now interested in this Vanguard ETF, you'll next need to decide about how to time your investment. You might invest all the funds you intend to dedicate to it in one single buy. But if you think the market is headed for a downturn, you might invest in installments --one-third of your total planned investment now, another third in a month or two, and the last third after that.
Another good approach with any investment is simply to dollar-cost average -- investing the same dollar amount regularly, over time. That way you'll get more shares when the price is low and fewer when the price is high, and over time, you'll be accumulating lots of shares.
Whatever you do, make sure you're planning -- and investing -- for your retirement.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Selena Maranjian owns shares of Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, and Microsoft. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, Home Depot, Microsoft, NVIDIA, Tesla, and Visa. The Motley Fool owns shares of Vanguard Growth ETF and Vanguard High Dividend Yield ETF and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool has a disclosure policy.
