Investing in an S&P 500 index fund is a well-known strategy for achieving diversification while tapping into the growth of the U.S. economy. However, some investors may seek something beyond a broad index, opting instead to include individual stocks and exchange-traded funds (ETFs) that align with their unique investment goals—be it generating passive income, targeting specific industries, or beating market benchmarks like the S&P 500.
Among the various offerings from Vanguard, the Vanguard S&P 500 Growth ETF (NYSEMKT: VOOG) has emerged as a standout performer in 2024, boasting impressive gains of 29.2% compared to the S&P 500’s 21.9% increase. This article explores why this ETF could continue its upward trajectory into 2025 and why it’s a compelling addition to a long-term investment portfolio.
The Vanguard S&P 500 Growth ETF specifically targets companies within the S&P 500 that exhibit significant growth potential. This ETF holds 231 stocks and focuses primarily on those with robust earnings forecasts, essentially slicing the S&P 500 in half to prioritize high-growth prospects irrespective of their current valuations.
The ETF’s considerable performance is largely driven by its top 10 holdings, which include renowned names like Apple, Microsoft, Nvidia, Alphabet, and Amazon. Together, these stocks account for a staggering 59.7% of the fund’s total allocation, compared to just 34.3% in the broader Vanguard S&P 500 ETF. As investors increasingly rally around these well-established growth companies, VOOG has been able to significantly outpace the standard S&P 500 index.
However, the road to sustainable growth is not without challenges. These prominent companies must consistently deliver earnings growth that outstrips the market to justify the premium they command. If they fall short, even the most robust stocks could face downward pressure on their share prices.
While growth stocks can often appear overvalued—many investors must consider the context behind the numbers. Stocks like Meta Platforms and Nvidia are investing heavily in areas like artificial intelligence and virtual reality, which could elevate operational costs today to secure even greater gains tomorrow. For instance, Meta’s ongoing spends on innovative technologies may lead to a transient decline in current profit margins for the promise of higher long-term growth.
What sets the Vanguard S&P 500 Growth ETF apart from other growth-focused funds is its prudent inclusion of established companies in more traditional sectors. This blend enriches the ETF with stocks such as Procter & Gamble and Coca-Cola, which, while not typically characterized by dramatic growth, provide a solid foundation of consistent earnings. As a result, approximately 40% of the fund is allocated to a diverse range of sectors, enhancing its resilience.
Additionally, the ETF is attractively priced with an expense ratio of only 0.1%. This makes it an affordable vehicle for investors aiming to gain exposure to a broad selection of growth stocks without incurring hefty fees. Historically, prioritizing quality businesses with strong earnings potential has yielded superior results compared to funds that focus on lesser-quality stocks.
However, prospective investors should maintain a long-term perspective when considering the Vanguard S&P 500 Growth ETF. The volatility of the market means that short-term fluctuations can impact even the strongest stocks, and a cool-down period could lead to substantial sell-offs, particularly for companies reliant on anticipated future growth.
Before making a commitment to the Vanguard S&P 500 Growth ETF, consider exploring alternative investment avenues. For instance, The Motley Fool’s analyst team has identified a list of ten high-potential stocks that could yield outstanding returns in the coming years—and intriguingly, VOOG isn’t among them.
Investors should stay informed and do their due diligence, utilizing all available resources to build a resilient and successful investment portfolio. Whether through index funds, focused ETFs, or individual stock purchases, a strategically diversified approach can help navigate the twists and turns of the investing landscape while positioning for growth.