If I Were in My 20s, I'd Buy This Magnificent Vanguard ETF and Hold It Until Retirement
Key Points
The Vanguard Morningstar Growth ETF mimics the Morningstar U.S. Large Cap Growth index, which holds 134 of America's most valuable growth stocks.
The ETF has over 72% of its assets parked in the technology sector alone, which is fueling its market-beating returns.
Buying this ETF instead of a more conservative index fund could leave young investors hundreds of thousands of dollars better off in retirement, but the journey will be more volatile.
Investing in an S&P 500 (SNPINDEX: ^GSPC) index fund is a surefire way to build wealth in the stock market over the long term, because it gives investors exposure to a diversified portfolio of 500 companies from 11 different sectors of the economy.
However, young investors in their 20s have time on their side, so enduring a little more volatility for the opportunity to earn even higher returns might be a worthwhile trade-off. Buying an exchange-traded fund (ETF) that focuses on growth stocks is one way to do it, and the Vanguard Morningstar Growth ETF (NYSEMKT: VUG) is a great potential candidate.
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It mimics the Morningstar U.S. Large Cap Growth index, which is exclusively made up of 134 of America's most valuable growth stocks. These stocks are known for delivering high capital gains, separating them from value stocks which usually produce more modest returns supplemented by dividend income.
The Vanguard ETF has beaten the S&P 500 every year (on average) since it was established in 2004, and here's why I'd buy it and hold it until retirement if I were in my 20s.
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Investing in America's fastest-growing companies
The Vanguard Morningstar Growth ETF has a whopping 72.1% of its assets parked in technology companies alone, which isn't necessarily a surprise given they operate at the forefront of high-growth industries like artificial intelligence (AI). High exposure to tech is a big reason why the ETF tends to outperform the more diversified S&P 500, but it can also lead to much greater volatility along the way.
The ETF is also very top-heavy, meaning its performance can be heavily influenced by a small handful of positions. In fact, despite holding over 130 different stocks, its top five positions represent a whopping 49.3% of the value of its entire portfolio.
Stock |
Vanguard ETF Portfolio Weighting |
|---|---|
1. Nvidia (NASDAQ: NVDA) |
13.48% |
2. Apple (NASDAQ: AAPL) |
12.50% |
3. Microsoft (NASDAQ: MSFT) |
9.74% |
4. Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) |
9.25% |
5. Broadcom (NASDAQ: AVGO) |
4.34% |
Data source: Vanguard. Portfolio weightings are accurate as of Sept. 30, 2026, and are subject to change.
Nvidia and Broadcom are two of the world's leading suppliers of semiconductors and components for data centers, where the majority of AI development takes place. These companies grew their sales by 106% and 86% (year over year), respectively, during their most recent quarters, and they would likely be growing even faster if they could produce enough chips to meet the extraordinary level of demand.
These two chip giants have produced blistering returns since the AI boom started gathering momentum in early 2023, obliterating the S&P 500.
Apple, on the other hand, is positioning itself to lead the consumer segment of the AI race. Its Apple Intelligence software brings new capabilities to its iPhones, iPads, and Mac computers, enabling users to quickly manage emails, notifications, and their social calendar. Plus, Apple Intelligence has significantly improved the Siri voice assistant, making it more powerful than ever.
Microsoft and Alphabet are competing in the enterprise AI market. Both have developed AI assistants which they embedded into their legacy software products, like Windows and 365 for Microsoft, and Google Workspace for Alphabet. These companies also operate enormous cloud platforms, where they offer the tools that enterprises need to develop and deploy AI themselves, from computing capacity to ready-made foundation models.
Outside of its top five positions, the Vanguard ETF holds other AI powerhouses like Amazon, Meta Platforms , Advanced Micro Devices, and Palantir Technologies, to name just a few.
The Vanguard ETF can supercharge a young investor's retirement fund
The Vanguard Morningstar Growth ETF has delivered a compound annual return of 12.1% since it was established in 2004, beating the S&P 500 which gained an average of 10.8% per year over the same period.
The 1.3 percentage-point difference might not sound like much, but it would make a significant difference in dollar terms over the long run thanks to the magic of compounding. Past performance isn't always a reliable indicator of future results, but below is how much money a 25-year-old investor could have at retirement age if they put $10,000 in the Vanguard ETF versus the S&P 500, assuming their average returns don't change.
Starting Balance at Age 25 |
Compound Annual Return |
Balance at Age 65 |
|---|---|---|
$10,000 |
12.1% (Vanguard ETF) |
$964,327 |
$10,000 |
10.8% (S&P 500) |
$604,770 |
Calculations by author.
Therefore, betting on growth could result in over $350,000 in additional retirement savings compared to taking a more conservative approach.
The Morningstar U.S. Large Cap Growth index (and, therefore, the Vanguard ETF) rebalances once per quarter by removing companies that no longer meet its criteria, and replacing them with more suitable candidates. That means it's likely to continue beating the S&P 500 over the long term, because it will always hold America's best-performing growth companies.
Even if the AI boom slows down, emerging growth industries like robotics and autonomous driving could take over to drive returns in the future, and the Vanguard ETF will almost certainly hold the stocks at the heart of those technological revolutions.
Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Broadcom, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, and Vanguard Morningstar Growth ETF. The Motley Fool has a disclosure policy.