This ETF can provide investors with market-beating potential and more stability than your typical growth-focused ETF.
When it comes to stock investing, I always tell people not to make it more complicated than it has to be. It can be exciting to invest in The Next Big Thing and hit it big on returns, but sometimes overthinking it can do more harm than good. Often, all you need to invest and receive worthwhile returns is an exchange-traded fund (ETF) that covers a lot of ground with a single investment.
One ETF that can be a staple in your portfolio is the Vanguard Growth ETF (VUG 1.62%). It checks off many boxes and has provided market-beating returns. Need more convincing? Check out these three reasons the Vanguard Growth ETF is a good go-to investment.
1. The ETF is led by some of the world's top companies
The Vanguard Growth ETF is made up of 208 stocks, but only a handful of companies lead the charge. The ETF is market-capitalization weighted, so larger companies account for more of the fund than others. Below are the ETF's top 10 holdings:
| Company | Percentage of the Fund |
|---|---|
| Microsoft | 12.84% |
| Apple | 11.15% |
| Nvidia | 7.75% |
| Amazon | 6.87% |
| Meta Platforms | 4.54% |
| Alphabet (Class A) | 3.42% |
| Alphabet (Class C) | 2.84% |
| Eli Lilly | 2.69% |
| Tesla | 2.28% |
| Visa | 1.81% |
Source: Vanguard.
These 10 holdings account for over 56% of the fund. Typically, some investors would want a less top-heavy ETF, but in the Vanguard Growth ETF's case, this has worked in its favor (and will likely continue to). Having some of the world's top companies leading your ETF is likely to be a good thing.
It also helps that these are megacap stocks (companies with a market cap of over $200 billion), so they provide a bit more stability than smaller companies. The combination of the growth focus and stability is a two-for-one benefit that can suit investors looking for market-beating returns while minimizing the volatility that often comes with growth stocks.
2. The Vanguard Growth ETF has outperformed the S&P 500 since its inception
The , which tracks 500 of the largest companies trading on the U.S. market, is a widely used benchmark. When funds and stocks evaluate their performance, it's often against the S&P 500. That said, the Vanguard Growth ETF has come out well against the stock market's most important index.
Since its January 2004 inception, the ETF's total returns have far exceeded those of the S&P 500. The difference is even more impressive considering that total returns include dividends, and the Vanguard ETF's growth focus excludes many dividend stocks.
VUG total return level; data by YCharts.
Of course, the fund's historical outperformance doesn't guarantee it'll continue to happen, but there's a lot of overlap between the two that works in the ETF's favor. Growth stocks are leading the market and should continue to over the long haul.
3. It's one of the cheapest ETFs on the stock market
ETFs have expense ratios, which are fees charged as a percentage of your total invested amount. Although these fees might seem minor, a slight difference can equate to thousands of real-life dollars over time.
The Vanguard Growth ETF's expense ratio is 0.04%, or $0.40 per $1,000 invested. For perspective, another growth-focused ETF, the ARK Innovation ETF, has an expense ratio of 0.75%. To see these fees in action, let's imagine you invest $500 monthly and average 10% annual returns over 25 years. Below is how your investments would measure up:
| Expense Ratio | Amount Paid in Fees | Investment Value After 25 Years |
|---|---|---|
| 0.04% | $3,500 | $586,500 |
| 0.75% | $62,600 | $527,400 |
Calculations by author. Values rounded down to the nearest hundred.
In this scenario, a difference of only 72 basis points in expense ratios equals about a $59,000 difference in fees paid over 25 years. The difference will vary based on returns and fees, but this example shows how even a relatively small difference can impact your long-term returns.
The No. 1 goal of investing is to make money; the next goal should be to keep as much of that money as possible for yourself. The Vanguard Growth ETF's low fees allow you to do just that.
Suzanne Frey, an executive at Alphabet, 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 Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Stefon Walters has positions in Apple and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla, Vanguard Index Funds-Vanguard Growth ETF, and Visa. 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.
