Whether you’re a seasoned investor or are just getting started, it’s hard to go wrong with exchange-traded funds (ETFs). These are baskets of securities bundled together into a single investment, and they can be a smart addition to your portfolio.
Not all ETFs are created equal, however, and some are riskier than others. Balancing risk and reward can be challenging, because ETFs with much higher-than-average returns often come with a substantial amount of risk.
These three funds have experienced substantial growth over time, but they don’t carry as much risk as some other types of investments. By holding these ETFs for as long as possible, you could potentially make a lot of money.
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The Vanguard Information Technology ETF (NYSEMKT: VGT) includes 333 stocks from the information technology sector, such as Apple, Microsoft, Visa, and NVIDIA.
Tech stocks are known for their high growth rates, but the biggest risk of investing in this fund is that it’s not as diversified as some other ETFs. Although the fund does include hundreds of stocks, all the companies are from the same industry. If the tech industry as a whole experiences a setback, it could significantly affect your investments. So if you invest in this ETF, make sure it’s part of a well-diversified portfolio with plenty of stocks from other industries.
This ETF was established in 2004, and since then it has earned an average rate of return of around 13% per year. In other words, despite experiencing ups and downs year after year, its returns average out to around 13% per year over time.
If you were to invest, say, $200 per month while earning a 13% average annual return, you could potentially accumulate around $704,000 after 30 years. While you may not earn these exact returns every year, investing consistently and staying in the stock market for decades will help maximize your earnings.
The Schwab U.S. Large-Cap Growth ETF (NYSEMKT: SCHG) tracks the Dow Jones U.S. Large-Cap Growth Total Stock Market Index, and it includes 235 large-cap stocks that have the potential for rapid growth.
Larger companies tend to be more stable than their smaller counterparts, which means this ETF carries less risk than funds that focus on small and mid-size stocks. Also, because the stocks are spread across a wide variety of industries — including technology, consumer goods, communication services, and healthcare — that diversification also reduces this fund’s risk.
Since this ETF’s inception in 2009, it has earned an average annual return of around 16%. Again, this doesn’t necessarily mean you’ll see 16% returns year after year, but rather as an average over time. If you were to invest $200 per month while earning 16% on average each year, you’d have around $1.273 million after 30 years.
The Vanguard Russell 1000 Growth ETF (NASDAQ: VONG) tracks the Russell 1000 Growth Index. It includes 457 large-cap growth stocks.
Like the Schwab fund, this ETF has lower risk because it includes stocks from larger companies in a variety of industries. In addition, this ETF contains more stocks than the other two funds on the list, which limits its risk even more.
This fund was established in 2010, and since then it has earned an average rate of return of around 17%. If you were to invest $200 per month with that annual average return, you’d accumulate around $1.554 million after 30 years.
When investing in any ETF (especially a growth ETF), patience is key. These funds are likely to experience volatility over the short term. And while in some years you may experience significantly higher-than-average returns, other years may bring losses. Over time, though, the good years should outnumber the bad, and you’re likely to see positive average returns.
Investing in the stock market is a long-term strategy, so it’s crucial to find investments that can stand the test of time. The longer you hold these ETFs, the more money you can potentially make.
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