Why the Vanguard Growth ETF is a great choice for long-term investors.
One of the best ways to build wealth is through investing. Whether you’re a beginner or an experienced investor, exchange-traded funds (ETFs) that track major market indexes can be a solid core asset. The great thing about index ETFs is that they’re great buy-and-hold investments that you can hold for life and keep more of your money invested over the years. One great choice in this category is the Vanguard Growth ETF (VUG 0.16%).
Let’s take a look at three reasons why this is the best ETF to buy and hold for life.
1. Low costs
The fees associated with investing in ETFs can eat into your returns and be costly in the long run. Therefore, it is generally better to continue investing in ETFs with low expense ratios.
A 1% fee may not sound like a big deal, but according to a report from the Securities and Exchange Commission (SEC), an annual fee of 1% will increase over 20 years on a $100,000 investment at 4%. This would reduce the value of your portfolio by $30,000. Annual return compared to an investment with an annual fee of 0.25%. An investment with a 0.5% fee costs $10,000 compared to an investment with a 0.25% annual fee.
VUG data by YCharts.
The actual disparity is likely to be even larger, given that most index funds average annual returns of more than 4% per year. That’s because as your investment grows, the absolute amount of fees paid each year increases. For example, 1% of $100,000 is $1,000, but if that investment eventually grows to $500,000, its annual fee suddenly becomes $5,000.
Fortunately for investors in the Vanguard Growth ETF, fees are extremely low at just 0.04%, allowing investors to keep nearly all of the gains the ETF generates.
2. Has a history of excellent performance
The Vanguard Growth ETF is similar to the better-known Vanguard S&P 500 ETF, except that it tracks the CRSP US Large Cap Growth Index, which is essentially 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. That $10,000 investment would be worth almost $42,400 today. By comparison, the Vanguard S&P 500 ETF produced an average annual return of 13.3% over the same period, meaning a $10,000 investment would now be worth almost $35,000.
The Vanguard Growth ETF’s outperformance has been even more pronounced recently, with the ETF gaining an average of 19% over the past five years. By comparison, the S&P 500 ETF’s average annual return over the same period was 15.9%.
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3. Heavy weight on technology stocks
Although the Vanguard Growth ETF and the S&P 500 ETF share most of their top 10 holdings, one key difference between them is that the Vanguard Growth ETF tends to have a much higher weighting of these top holdings. There is. For example, Apple, Microsoft, and Nvidia are the top three holdings in both ETFs, but they account for 36% of the Growth ETF’s holdings, compared to 19.7% of the S&P 500 ETF’s holdings.
Overall, the Vanguard Growth ETF has a much higher weighting towards technology stocks, with almost 60% of its portfolio in this sector, compared to about 31% of the S&P 500 ETF. This is why I prefer holding the Vanguard Growth ETF for the long term.
Like the S&P 500 ETF, a growth ETF tracks a market-weighted index. In other words, the larger the company, the larger its weight in the index. The great thing about index investing is that you never miss a beat. So, as stocks perform better and companies grow, index investments become a larger and larger portion of your portfolio.
Well, there’s a reason why tech stocks dominate the top holdings in these ETFs. That’s because tech companies have shown time and time again their ability to become the largest and most dominant companies on the planet. I don’t think this will change over the next 10 to 20 years, as companies continue to grow on top of emerging technologies, including artificial intelligence (AI).
As technology continues to advance, I want to invest in ETFs that are overweight in the technology sector over the long term. That’s why I think the Vanguard Growth ETF is a great investment option to buy and hold for life.
Jeffrey Seiler has no position in any 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: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
