Exchange-traded funds (ETFs) are some of the best ways to invest in the stock market. They can provide almost instant diversification and are less risky than individual stocks. Some have themes that allow you to invest in specific sectors, industries, and trends.
The risk part is important for ETFs, especially now, when there is more uncertainty surrounding the stock market than usual. ETFs aren’t immune to market drops by any means, but since they contain many companies, a single company’s poor performance won’t throw off the whole investment.
If you want to add an ETF to your portfolio, the Vanguard S&P 500 Growth Index Fund ETF (VOOG 0.75%) could be a good addition if you have up to $1,000 available to invest. The ETF contains S&P 500 companies with above-average growth potential, possibly setting you up for market-beating gains.
The sweet spot between stability and growth
With over 200 growth companies from the S&P 500, this ETF can offer you the best of both worlds. On one end, it takes being one of the 500 largest U.S. companies on the market to be in the S&P 500, so all the companies are well established with more financial stability than most younger growth stocks.
Of course, not all S&P 500 companies are created equal, and exceptions exist. But for the most part, these companies have proven business models and resources to help weather economic ups and downs (and trust me, there will be ups and downs along the way).
On the other end, the growth focus exposes investors to top companies that are expanding and have a lot more opportunities ahead of them.
As the tech sector goes, so does this ETF
This ETF is more tech-leaning than the already tech-heavy standard S&P 500. That’s not necessarily a bad thing because the tech sector has been the most rewarding over the past decade or two, but it does mean that you should be prepared for the ETF to be heavily influenced by the happenings of the tech sector.
Here is how the ETF is broken down by sector:
| Sector | Percentage of S&P 500 Growth | Percentage of S&P 500 |
|---|---|---|
| Communication Services | 14.70% | 9.40% |
| Consumer Discretionary | 12.20% | 10.50% |
| Consumer Staples | 3.80% | 5.90% |
| Energy | 0.70% | 3.30% |
| Financials | 13.20% | 14.50% |
| Health Care | 6.40% | 10.80% |
| Industrials | 8.20% | 8.30% |
| Information Technology | 37.90% | 30.70% |
| Materials | 0.50% | 2.00% |
| Real Estate | 1.30% | 2.20% |
| Utilities | 1.10% | 2.40% |
Source: Vanguard. Percentages as of Feb. 28.
If more investors begin seeking out value and dividends during this time, the ETF could lag behind a bit in the near term, but the long-term potential remains strong.
This ETF relies heavily on the Magnificent Seven stocks
With the large representation of the tech sector and the ETF weighted by market cap, it’s no surprise that many of its top holdings are Magnificent Seven companies, which generally have some of the highest valuations on the market.
| Company | Percentage of S&P 500 Growth | Percentage of S&P 500 |
|---|---|---|
| NVIDIA | 11.88% | 6.07% |
| Apple | 6.52% | 7.24% |
| Microsoft | 5.95% | 5.85% |
| Meta Platforms | 5.65% | 2.88% |
| Amazon | 4.47% | 3.93% |
| Alphabet (Class A) | 3.86% | 1.97% |
| Broadcom | 3.61% | 1.84% |
| Alphabet (Class C) | 3.18% | 1.62% |
| Tesla | 3.17% | 1.62% |
| Eli Lilly | 2.81% | N/A |
| Berkshire Hathaway | N/A | 1.87% |
Source: Vanguard. Percentages as of Feb. 28. N/A indicates a stock isn’t in the opposite ETF’s top 10 holdings.
It may not be ideal for the Magnificent Seven companies to make up close to 45% of the ETF, but those have been some of the fastest-growing companies in the S&P 500, even with their size. The Magnificent Seven have artificial intelligence (AI) advancements, cloud-computing growth, electric vehicles (EVs), and other innovations that can continue their momentum.
The other two companies in the top 10 aren’t part of the Magnificent Seven but also have good growth opportunities. Broadcom is a key semiconductor player that’s become more important over the past couple of years, and Eli Lilly is one of the leading innovators in the healthcare sector.
That’s not a bad handful of companies to have leading the way.
History is on investors’ side with this ETF
Since it was created in September 2010, this ETF has outperformed the S&P 500 by a decent amount.
I wouldn’t bank on the ETF averaging 14% annual returns long term, but for the sake of illustration, let’s assume it averages 12% annually (the S&P 500 average since this ETF’s inception).
In this case, a $1,000 investment could triple to over $3,000 in 10 years and grow almost tenfold to over $9,500 in 20 years (accounting for the ETF’s 0.07% expense ratio).
Down periods in the market don’t usually bode well for growth stocks in the short term, but that could work out in your favor over the long haul as prices drop. You likely won’t regret your investment some years from now.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Stefon Walters has positions in Apple and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
