It’s easy to forget about this during the day-to-day rush of following stock market news, but buying stocks is (hopefully, for most people) a long-term game. If you’re putting your hard-earned money at risk in the stock market, it’s best if you don’t need that money back right away. Hopefully, you’re not investing emergency savings you might need tomorrow or the short-term vacation fund you want to use next year.
However, the stock market is not just about risks. It can also bring massive rewards. Money in the stock market can grow faster than you might think. Stock market investments can build surprisingly large amounts of wealth, but it works best if you can leave your stocks alone for five, 10, or 20 years.
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Let’s look at a few different exchange-traded funds (ETFs) with well-established track records of delivering strong returns. Let’s also envision what a $500-per-month investment in each ETF might grow to in 20 years.
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Six ETFs for the next 20 years: VOO, SCHD, VGT, VUG, QQQM, DGRO
These six ETFs let you invest in stocks based on a variety of themes and strategies. Some are tech-heavy, some are broadly diversified, and some focus on earning income through dividends.
The Vanguard S&P 500 ETF (NYSEMKT: VOO) is one of the most popular low-cost S&P 500 ETFs. It tracks the performance of the 500 largest publicly traded companies in America. VOO has delivered annualized returnsof about 12.7% year to date, 13.8% in the past five years, and 15.3% in the past 10 years. Its expense ratio is 0.03%.
The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is a low-cost index fund tracking 100 U.S. stocks that tend to be financially strong and pay high, sustainable dividends. SCHD has delivered annualized returns of about 21.5% year to date, 9.5% in the past five years, and 12.4% in the past 10 years. The fund’s expense ratio is 0.06%.
The Vanguard Information Technology ETF (NYSEMKT: VGT) is a tech-focused ETF holding 318 tech stocks of companies serving the computer and electronics industries. VGT has a heavy allocation toward mega-cap tech leaders. Its top holdings include Nvidia (17.7% of the fund), Apple (15.8%), and Microsoft (11.5%).
VGT does not hold some tech majors like Alphabet, Amazon, Meta Platforms, and Tesla because thsoe stocks are classified in different sectors by sector.
VGT has delivered annualized returns of about 33.8% year to date, 20.9% over the past five years, and 24.7% over the past 10 years. The fund’s expense ratio is 0.09%.
The Vanguard Morningstar Growth ETF (NYSEMKT: VUG) is a tech-heavy ETF with 147 stocks, and 69.8% of the fund is weighted to the technology sector. The top stock holdings include Nvidia (13.6% of the fund), Apple (12.5%), and Microsoft (10.1%). VUG has delivered annualized returns of about 11.2% year to date, 13.9% for the past five years, and 17.9% for the past 10 years. Its expense ratio is 0.03%.
The Invesco Nasdaq-100 ETF (NASDAQ: QQQM) is a relatively low-cost index fund tracking the tech-heavy Nasdaq-100 index. Just like VUG and VGT, this fund’s top two holdings are Nvidia (8.5% of QQQM holdings) and Apple (7.3%). Alphabet is the third-largest holding in QQQM, with 5.88% of the fund (combining Class A and Class C shares).
This fund has delivered annualized returns of about 20.9% year to date and 16.4% for the past five years. QQQM has only been available since October 2020, but the Nasdaq-100 index (which QQQM tracks) has delivered annualized returns of about 21.2% for the past 10 years. QQQM’s expense ratio is 0.15%.
The iShares Core Dividend Growth ETF (NYSEMKT: DGRO) is another dividend index fund that invests in U.S. stocks with a track record of growing their dividends over time. It holds 390 stocks from a broad range of industries, including financials (19.4% of the fund), information technology (18.7%), healthcare (17.2%), and consumer staples (12.4%).
DGRO has delivered annualized returns of about 11.5% year to date, 10.96% for the past five years, and 13.2% for the past 10 years. Its expense ratio is 0.08%.
How these six ETFs could grow for 20 years
Past performance doesn’t guarantee future results. No one knows which ETFs will outperform the others, and none are guaranteed to beat the rest of the stock market. But based on past results, let’s make some assumptions and estimates.
Let’s assume you invest $500 a month into each of these six ETFs and keep investing that same amount for 20 years. Let’s assume you keep reinvesting any dividends along the way and leave all that money untouched to keep growing for 20 years.
The following table shows a range of possible outcomes for what each of these ETFs could grow to after 20 years, based on a “bull case” (the highest average annual return each ETF has delivered in the past time frames mentioned above), a “bear case” (the lowest average annual return shown above), and “base case” (the middle ground return shown above).
Data source: Author’s calculations, Investor.gov compound interest calculator.
Remember that these are just rough estimates based on past returns, not exact predictions or promises for how these ETFs will perform in the future. Some of these “bull case” estimates might prove too optimistic. Some of these ETFs have delivered exceptionally strong returns recently (such as 33.8% year-to-date) that are unlikely to continue over the next 20 years.
The point of this article is not to make guarantees. It’s to paint a general picture of just how powerful the stock market can be when your money keeps growing for 20 years. All these ETFs have the potential to deliver strong growth for your money. Any of these six ETFs could be worth investing in, based on your risk tolerance and financial goals. Just $500 a month can grow into an impressive nest egg after 20 years of the magical math of compounding returns.
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Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla, Vanguard Morningstar Growth ETF, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
