Growth stocks can make ideal long-term investments to hold. They’re primarily suitable for long-term investors who have the patience to hold on amid market uncertainty. The stock market has, after all, bounced back from all downturns over the years; it’s batting 100%.
The S&P 500 is a great way to track the overall market, but for investors who want to gain exposure specifically to the top growth stocks within the index, that’s where the Vanguard S&P 500 Growth ETF (NYSEMKT:VOOG) comes into play. Here’s why this could be an intriguing option for growth investors to consider.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Image source: Getty Images.
The Vanguard fund has vastly outperformed the S&P 500 over the past decade
The biggest reason investors may want to consider investing in the Vanguard fund is its potential to outperform the overall market, especially over the long term. In the past 10 years, the Vanguard fund has generated total returns (which include dividends) of more than 400%, dwarfing the S&P 500 over that same time frame.
Past returns don’t predict the future. However, tracking the top growth stocks can give investors the opportunity to generate better-than-average returns simply because they represent some of the most exciting investments in the world. The danger, however, is that in the short term, there may be risk and uncertainty, particularly if stocks come under pressure due to their high valuations.
Many of the big names in the Vanguard ETF are tied to artificial intelligence (AI); the fund’s top holdings include Nvidia, Alphabet, Broadcom, Micron Technology, and many tech companies. That kind of exposure to AI could make this growth-focused fund highly vulnerable to a near-term correction.
The big question investors should ask themselves before buying the Vanguard S&P 500 Growth ETF
While the Vanguard S&P 500 Growth ETF does provide excellent exposure to growth stocks, the key question investors need to ask themselves is how long they’re prepared to hold the ETF. If it’s anything less than five years, it may not be appropriate given the near-term risk it poses due to its exposure to tech and AI.
For investors willing to hang on for at least a decade, the ETF may be a more suitable option. However, even then, I wouldn’t call it a no-brainer buy, simply because it carries risk, and downturns can last several years; it’s not a slam-dunk to continue outperforming the broader index over the long run. Investors who buy this ETF should be aware of the risks involved.
