Investing in stocks is one of the best ways to accumulate wealth over the long term. That said, it's not easy picking stocks. It takes a lot of research to choose good stocks, and professional investors generally have more resources than individual investors.
However, that shouldn't keep individuals from investing in stocks -- far from it. Instead of picking a portfolio of individual equities, one great option is to invest in stocks through an index exchange-traded fund (ETF) .
If you have a long time until retirement, in my view one the best options to consider is investing in ETFs that focus on growth stocks, particularly those with heavy weightings toward the technology sector .
Over the long term, nothing tends to drive the price of a stock more than growth. Businesses that are able to strongly grow their revenues and profits over time become bigger companies and their stock prices follow.
Meanwhile, technology is one of the best sectors to see outsized growth. There is a reason why most of the largest companies in the world are either classified as technology companies or have pretty strong technology components. In fact, about eight of the 10 largest companies in the S&P 500 index would fit in this category.
As such, let's look at two index ETFs with a focus on growth stocks that investors can buy and hold for decades.
Vanguard Information Technology ETF
If you're a fan of technology investing, then the Vanguard Information Technology ETF ( VGT 0.89% ) is a great option to consider. This ETF looks to mimic the performance of the MSCI US Investable Market Information Technology 25/50 index, which is a market-cap weighted index that invests in large, medium, and small-cap US companies in the information technology sector.
As with most market-cap weighted index ETFs, the fund lets its winners become larger positions within its portfolio and its losers fall by the wayside. To do this, the ETF is currently weighted heavily toward its top three holdings, consisting of Apple at 15.8% of its portfolio, Nvidia at 15.4%, and Microsoft at 13.4%, as of the end of last month.
The Vanguard Information Technology Index has been a stellar performer not just recently but over time. As of the end of October, the ETF has an average annual return of nearly 20.4% over the past decade, which is good for a 538.53% return over that period on a cumulative basis. Meanwhile, the ETF is up nearly 43.8% over the past year as of the end of October.
As with most Vanguard index ETFs, it also comes with low fees, having an expense ratio of just 0.10%, or $10 annually on an investment of $10,000. Fees can have a big negative impact on investor returns, so this is a low fee for a technology-specific ETF.
Given the heavy concentration among its top three holdings, the Vanguard Information Technology ETF is certainly a more aggressive ETF. But with large technology companies continually leading the way forward and taking advantage of emerging technologies like artificial intelligence (AI) , this is a great ETF to consider buying and holding on to for the long term.
Vanguard S&P 500 Growth ETF
For investors looking to invest in growth stocks with a little more diversity, the Vanguard S&P 500 Growth ETF ( VOOG 0.90% ) is a great option to consider. The ETF tracks the CRSP US Large Cap Growth Index , which is essentially the growth side of the S&P 500 index.
Its top three holdings are the same as the Vanguard Information Technology ETF but in a smaller dose. It also counts tech-adjacent stocks such as Amazon and Tesla among its top holdings, as well as other growth companies such as drugmaker Eli Lilly .
Its expense ratio, meanwhile, is lower than the Vanguard Information Technology ETF at only 0.04%.
The ETF has also been a strong performer over the years. It has an average annual return of nearly 15.2% over the past 10 years, which equates to a 310.6% cumulative return over the past decade, as of the end of October. Over the past year, its up nearly 44% as of the end of October.
While not quite as aggressive at the Vanguard Information Technology ETF, its focus on large-cap growth stocks still puts the ETF in the more aggressive category. However, over the long run, I believe that investing in growth stocks is one of the best ways to create long-term wealth.
If AI is indeed in its early innings, both of these ETFs should be very strong performers over the long run.
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