Key Points
Making a million dollars in the stock market is possible for the average investor, and it doesn’t require hitting the jackpot or finding the next Nvidia. Consistently investing in a quality exchange-traded fund (ETF) has proven to be a reliable strategy anybody can embrace.
There are plenty of ETFs to choose from, but they’re not all created equal. While you can stick to a broad S&P 500 ETF, one ETF that has consistently outperformed the market and can put you on a fast track is the Vanguard Morningstar Growth ETF (NYSEMKT: VUG). At its current pace, it could be one of the more dependable means of hitting the million-dollar mark.
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A peek into VUG
VUG holds 135 stocks, with the bulk coming from the tech sector because of its focus on large-cap growth stocks.
- Tech: 72.1%
- Consumer discretionary: 12.0%
- Industrials: 7.1%
- Healthcare: 4.2%
- Telecommunications: 1.5%
- Financials: 1.2%
- Real estate: 0.9%
- Basic materials: 0.4%
- Energy: 0.3%
- Consumer staples: 0.2%
- Utilities: 0.1%
The tech sector has been the best-performing sector over the past 10-15 years, so the high concentration makes sense and has worked in investors’ favor. That high concentration comes with risk — especially with Nvidia (13.48%), Apple (12.50%), and Microsoft (9.74%) accounting for over 35% — but sometimes you just need to let your winners run.
The growth has paid off for VUG, with the ETF outperforming the S&P 500 in 14 of the 22 years since it began trading. Here’s how it has performed over key periods:
| Three-Year Annual Average Returns | Five-Year Annual Average Returns | 10-Year Annual Average Returns | Annual Average Returns Since Inception |
|---|---|---|---|
| 23.3% | 11.8% | 16.9% | 11% |
Data source: YCharts. Percentages as of Oct. 16.
Over each period, VUG has outperformed the S&P 500, which is what you’re aiming for when you invest in a growth ETF.
The road to a million
VUG’s historical gains have been impressive, but past results don’t guarantee future performance, and expecting it to maintain those returns over the next couple of decades could be unrealistic. To see how VUG could lead you to the million-dollar mark, we’ll use a more modest 10% annual average.
In that case, here’s how long it would take based on how much you invest monthly:
| Monthly Investment | Years Until $1 Million |
|---|---|
| $250 | 38 |
| $500 | 31 |
| $1,000 | 24 |
| $1,500 | 20 |
| $2,000 | 18 |
Calculations by author. Years are rounded to the nearest full year.
Obviously, the more you invest, the faster you can reach $1 million, but the bigger takeaway is the effectiveness of compounding interest. Investing $250 monthly for 38 years requires you to spend only spend $114,000, with the power of compounding interest doing the rest of the work to reach the $1 million mark. If you invest $500 monthly over 31 years, you will only spend $186,000; and $2,000 monthly over 18 years requires you to put in $432,000.
Along the way, VUG’s low expense ratio keeps more gains in your pocket rather than Vanguard’s. Its expense ratio is only 0.03%, or $3 annually per $10,000 invested, and although slight differences in expense ratios may not seem noteworthy, the difference between paying 0.03% and paying 0.15% could easily amount to thousands of dollars over time.
Should you buy stock in Vanguard Morningstar Growth ETF right now?
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Stefon Walters has positions in Apple and Microsoft. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Vanguard Morningstar Growth ETF. The Motley Fool has a disclosure policy.
