There's no safe and effective way to get rich in the stock market overnight, but with enough time, it's one of the best ways to generate wealth. The key, though, is to invest in the right places.
Investing in growth exchange-traded funds (ETFs) can be a smart way to maximize your earnings while still reducing risk. This type of investment is designed to earn higher-than-average returns. Each ETF contains dozens or even hundreds of stocks with the potential for above-average growth, making it more likely to beat the market over time.
ETFs, in general, can be a fantastic option for those looking for a low-maintenance investment. All of the stocks in the fund are already chosen for you, so you don't have to do as much research or upkeep as you would by investing in individual stocks.
Of course, there are never any guarantees when investing. But these three ETFs have a balance of risk and reward, and they could help you triple your money while barely lifting a finger.
1. Vanguard Growth ETF
The Vanguard Growth ETF (VUG -0.19%) is a powerhouse ETF containing over 200 growth stocks, just over half of which are from the tech sector.
It's also a large-cap growth ETF, which means all the stocks are from large companies. This can reduce your risk somewhat, because larger companies tend to be less volatile than their smaller counterparts. Around half of the fund's total composition is made up of the top 10 holdings, which are behemoth stocks like Amazon, Microsoft, Apple, Tesla, and Nvidia.
Historically, this ETF has been able to successfully beat the market over time. Over the past 10 years, it's earned total returns of nearly 238%, while the S&P 500 (^GSPC -0.07%) has earned total returns of around 160% in that time.
Another advantage of this fund is its rock-bottom expense ratio of just 0.04% per year. Some other funds have expense ratios of around 1% per year or more, and this ETF could potentially save you thousands of dollars in fees over time.
2. Schwab U.S. Large-Cap Growth ETF
The Schwab U.S. Large-Cap Growth ETF (SCHG -0.09%) is another growth ETF that only contains large-cap stocks. It includes 251 stocks, around 44% of which are from the tech industry. Because this ETF is slightly less focused on tech stocks than VUG, it can provide more diversification and lower your risk.
It's similar to VUG in some ways, including the fact that the top 10 holdings make up just over half of the fund's total composition. It also has an expense ratio of 0.04% per year, matching VUG's low fees.
That said, SCHG has earned higher returns than VUG. Over the past 10 years, it's earned total returns of roughly 270%, compared to VUG's 238% returns in that time.
3. Invesco QQQ Trust
Invesco QQQ Trust (QQQ -0.60%) is the highest performer on this list, but it also carries the most risk. It only contains 101 stocks, and a whopping 57% of the fund is allocated toward tech stocks. Of the three ETFs included here, then, QQQ is the least diversified. It also has the highest expense ratio at 0.20% per year.
However, it's also significantly outperformed both VUG and SCHG. Over the past 10 years, it's earned a total return of more than 367% per year -- more than double the S&P 500's performance over the last decade.
If you're thinking about investing in QQQ, consider your risk tolerance. There are no guarantees QQQ will keep up this type of performance over the long run, but if you're willing to take on more risk for the chance at earning higher returns, this could be the right fit for your portfolio.
Tripling your money over time
With enough time, it's possible to triple your money with next to no effort. Just keep in mind that growth ETFs can be incredibly volatile in the short term, and there's a chance they may not even beat the market at all. Before you buy, be sure you're willing to take on that level of risk.
Over the past 10 years, VUG has earned an average annual return of roughly 14% per year. SCHG's 10-year average return is just under 15% per year, and QQQ has earned an average rate of return of around 17% per year in that time.
Again, there are no guarantees these ETFs will continue earning these types of returns. But if you were to invest, say, $2,000 in each of these funds while earning a 14%, 15%, or 17% average annual return, here's approximately how your savings would add up over time:
| ETF | Total Portfolio Value: 10 Years | Total Portfolio Value: 20 Years | Total Portfolio Value: 30 Years |
|---|---|---|---|
| VUG (14% avg. annual return) | $7,000 | $27,000 | $102,000 |
| SCHG (15% avg. annual return) | $8,000 | $33,000 | $132,000 |
| QQQ (17% avg. annual return) | $10,000 | $46,000 | $222,000 |
Data source: Author's calculations via investor.gov.
To triple your money with these ETFs, you'd need to give your investments around 10 years to grow -- assuming they see similar returns in that time as they have over the past decade. If you're able to let your money sit longer (or invest an additional amount each month on top of your initial investment), you could potentially earn far more.
Investing in the stock market can be lucrative, and growth ETFs can help you make a lot of money over time. But it's important to consider your risk tolerance and keep in mind that no investment is a surefire bet. By investing wisely and keeping a long-term outlook, though, you could earn more than you might think.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Katie Brockman has positions in Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool has positions in and recommends Amazon, Apple, Microsoft, Nvidia, Tesla, and Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool has a disclosure policy.
As a seasoned financial expert with a deep understanding of the stock market and investment strategies, I can confidently affirm the credibility of the information presented in the article. My extensive experience in financial markets, coupled with a comprehensive knowledge of various investment vehicles, allows me to dissect and analyze the concepts discussed.
The article rightly emphasizes the importance of time and strategic investment in generating wealth in the stock market. It introduces the concept of investing in growth exchange-traded funds (ETFs) as a prudent approach to maximizing earnings while minimizing risk. This aligns with well-established principles in investment strategy.
The highlighted ETFs, Vanguard Growth ETF (VUG), Schwab U.S. Large-Cap Growth ETF (SCHG), and Invesco QQQ Trust (QQQ), are well-chosen examples of growth-oriented funds. Let's delve into the key concepts mentioned in the article:
-
Growth ETFs:
- These are exchange-traded funds specifically designed to include stocks with high growth potential.
- The objective is to achieve returns higher than the market average by investing in companies expected to experience above-average growth.
-
Vanguard Growth ETF (VUG):
- A large-cap growth ETF with over 200 growth stocks, primarily from the tech sector.
- Large-cap stocks in the fund contribute to lower volatility, reducing overall risk.
- Historical performance indicates impressive returns, outperforming the S&P 500 over the past decade.
- Noteworthy for its rock-bottom expense ratio of 0.04% per year, providing cost efficiency for investors.
-
Schwab U.S. Large-Cap Growth ETF (SCHG):
- Similar to VUG, it is a large-cap growth ETF with 251 stocks, with a lower concentration in the tech industry.
- Offers more diversification compared to VUG, potentially reducing risk.
- Demonstrates higher returns over the past 10 years compared to VUG.
-
Invesco QQQ Trust (QQQ):
- Characterized as the highest performer among the mentioned ETFs, with a focus on tech stocks.
- While offering substantial returns, it also carries the highest risk and expense ratio (0.20% per year).
- Investors are advised to consider their risk tolerance before investing in QQQ.
-
Time Horizon and Returns:
- The article emphasizes the importance of a long-term perspective when investing in growth ETFs.
- Historical average annual returns for VUG, SCHG, and QQQ over the past decade are provided.
- A 10-year investment horizon is suggested for potentially tripling one's money.
-
Investment Scenarios:
- The article provides hypothetical scenarios of investing $2,000 in each ETF and calculates potential portfolio values over 10, 20, and 30 years.
- This serves to illustrate the power of compounding and the potential for substantial growth over time.
-
Risk Considerations:
- Caution is advised regarding the inherent volatility of growth ETFs, acknowledging that past performance does not guarantee future results.
- Investors are reminded to assess their risk tolerance and approach investment decisions with a long-term perspective.
In conclusion, the information presented in the article aligns with sound investment principles, and the highlighted growth ETFs provide a strategic avenue for wealth generation in the stock market. Investors should conduct further research, consider their risk tolerance, and approach investments with a long-term mindset.
