ETFs
3 Magnificent ETFs That Could Help You Beat the Market Effortlessly
Investing in the stock market is a powerful wealth-building opportunity, but buying individual stocks can sometimes be tedious and time-consuming.
Exchange traded funds (ETFs) can be a smart option for those looking for a simpler, hassle-free way to invest while still reaping the rewards of long-term gains. An ETF is a basket of securities grouped into a single investment, making it easier to build a diversified portfolio with a single fund.
There are countless ETFs to choose from, each with their own pros and cons. While there are never any guarantees when it comes to the stock market, these three growth ETFs have a track record of beating the market and could help you maximize your profits in the long run.
1. Vanguard Growth ETF (VUG)
THE Vanguard Growth ETF (NYSEMKT:VUG) contains 299 stocks with above-average growth potential. About 56% of the fund is allocated to stocks in the technology sector, which can increase its growth potential as well as its risk.
Technology stocks, in general, tend to be more volatile than stocks in other sectors. This is especially true during periods of market volatility. But they can also experience more explosive growth, helping to increase your earning potential.
Although growth ETFs can often be hit harder than other funds during down markets, they also tend to thrive when the market is rising. However, over time, positive returns should ideally offset negative returns, leading to above-average returns.
Although past performance does not predict future returns, the Vanguard Growth ETF has consistently beaten the market. Over the past 10 years, it has generated total returns of more than 114%, compared to 81% for the S&P 500.
2. Schwab US Large Cap Growth ETF (SCHG)
THE Schwab US Large Cap Growth ETF (NYSEMKT:SCHG) is similar to the Vanguard Growth ETF in many ways, except that it is slightly more diversified. It contains 250 stocks, of which around 46% are allocated to the technology sector.
In general, more diversified portfolio entails less risk. Although this growth ETF still allocates nearly half of its composition to tech stocks, it’s less than many other similar growth funds. It also contains more stocks in total than the Vanguard Growth ETF, which creates even more diversification.
To be clear, this investment still carries more risk than many other ETFs, namely broad market funds, such as S&P 500 ETFs or total stock ETFs. But compared to other growth ETFs, SCHG has a larger number of total stocks and places less emphasis on the technology sector.
Over the past 10 years, this ETF has managed to significantly outperform the S&P 500. Again, this doesn’t necessarily mean it will continue to see similar returns in the future. It is therefore wise to control your expectations when investing in growth ETFs. .
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3. Invesco QQQ Trust (QQQ)
Invesco QQQ Trust (NASDAQ: QQQ) is a great example of a higher risk, higher reward growth ETF. It only contains 101 stocks, with 59% of the fund dedicated to the technology sector, making it less diversified than the other two ETFs on this list.
QQQ also has the highest expense ratio, at 0.20%, compared to 0.04% for VUG and SCHG. While this may not seem like a significant difference, even a slightly higher expense ratio can add up to tens of thousands of dollars in costs over decades.
That said, QQQ also had, by far, the highest total returns among the ETFs listed here. While these numbers are tempting, make sure you are willing to take on higher levels of risk before investing in this ETF. Higher risk ETFs can be incredibly volatile, so if you choose to buy, be prepared for more extreme highs and lows in the short term.
An Important Caveat About Growth ETFs
Although growth ETFs are designed to beat the market, there is no guarantee that they will actually do so. Although ETFs generally carry less risk than investing in individual stocks, there is still a chance that they will underperform.
Before you buy, consider your investment goals and priorities. If relative safety and security are your main goals, a broad market fund may be a better option. These types of funds are much more diversified than growth ETFs and aim to track market performance over time, helping to reduce risk.
On the other hand, if you’re comfortable with higher levels of risk and volatility in exchange for potentially higher returns, growth ETFs might be a good fit for your portfolio. There’s no guarantee they’ll generate above-average returns, but good funds will have a better chance of outperforming the market over time.
Investing in growth ETFs can be a fantastic way to grow your portfolio with less effort, and you may even be able to beat the market if your fund performs well. By investing in the right places and keeping a long-term view, you could earn more than you think.
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Katie Brockman has positions in Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool has positions in and recommends the Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool has a disclosure policy.
3 Magnificent ETFs That Could Help You Beat the Market Effortlessly was originally published by The Motley Fool