2 Top Vanguard ETFs for Growth Investors

The S&P 500 has shown exceptional performance this year, climbing by 27% as of Monday's market close. Over the past five years, this key index has nearly doubled in value, a feat that undoubtedly captures the attention of investors.

While such growth is commendable, it prompts a critical question: Is the stock market overheating, and is it the right time to invest? Many investors might be wary, speculating on the possibility of a market slowdown or the onset of a bear market.

For growth investors, rather than selecting individual stocks in this fluctuating market, a prudent strategy might be to opt for exchange-traded funds (ETFs). These financial instruments reduce vulnerability to any single investment while still offering the potential for solid long-term returns. Such diversified investments can be a great way to minimize risk while remaining invested in the market.

Two standout Vanguard ETFs that growth investors should consider are the Vanguard Growth Index Fund ETF (VUG 0.68%) and the Vanguard Mid-Cap Growth Index Fund ETF (VOT 0.74%). Here’s a deeper look at why these ETFs can be ideal for a long-term investment strategy.

Vanguard Growth Index Fund

The Vanguard Growth Index ETF is appealing because it primarily invests in large U.S. companies, making it a suitable option for investors looking to buy and hold. It boasts a low expense ratio of just 0.04%, which is advantageous over time.

As of the end of October, the ETF holds 182 stocks, predominantly in the technology sector, which constitutes 58% of its total allocation. Major companies like Apple, Nvidia, and Microsoft are among its top investments. This focus has allowed the fund to outpace the S&P 500 over the past five years, with its value more than doubling during that period.

While these tech stocks may seem expensive, investing in reputable technology companies can provide strong returns in the long term. The diversity within the Vanguard Growth Index ETF means that investors are not overly reliant on any single stock, unlike strategies involving individual stock picks.

Vanguard Mid-Cap Growth Index Fund ETF

For those seeking additional growth opportunities, the Vanguard Mid-Cap Growth Index Fund ETF is another compelling choice. This fund primarily focuses on mid-cap stocks, which often hold substantial growth potential due to their relatively modest valuations.

Although mid-cap stocks can indeed be riskier, the diversification provided by an ETF helps to mitigate this risk significantly. The fund consists of 140 stocks, with a median market capitalization of just under $38 billion. Its holdings are well-distributed across various sectors, with technology at 23%, industrials at 22%, consumer discretionary at 14%, and healthcare at 12%.

The largest holding in this ETF is Palantir Technologies, which represents around 2.3% of the total weight. This diversification makes the fund a more stable option compared to others. Moreover, its expense ratio of 0.07% remains quite low.

Although the fund has lagged behind the market in recent years, past performance does not dictate future results. As valuations of tech stocks rise, it is possible that growth investors may shift their focus toward mid-cap stocks, which this fund offers in abundance.

ETFs, Growth, Investing