3 Reasons to Buy the Vanguard Growth ETF Like There’s No Tomorrow

3 Reasons to Buy the Vanguard Growth ETF Like There’s No Tomorrow

The market is firmly back in bull territory, and bull markets favor growth stocks and tech stocks. That’s been the case since the S&P 500 hit its bear market bottom in Oct. 2022, only to quickly rebound and reach new all-time highs this year. Many growth stocks battered by the previous downturn are soaring once again.

And one of the best proxies for these high-performing stocks is the Vanguard Growth Index Fund ETF (NYSEMKT: VUG), which follows the CRSP (Center for Research in Securities Prices) U.S. Large-Cap Growth Index. This is an index of top growth stocks, and its returns have topped the S&P 500 over most time periods. Here are three reasons to buy it right now.

1. The economy is shaping up

This ETF follows a group of around 200 large-cap growth stocks with a median market cap of $715 billion. It has a high concentration of “Magnificent Seven” stocks, which make up more than half of the portfolio by value. However, it’s just as large-cap focused as it is growth focused, and some of its top holdings include other notable stocks like Costco, Home Depot, and McDonald’s. These aren’t the kinds of names investors typically associate with growth stocks.

Like the S&P 500’s constituents, these are all top U.S. companies that play a large role in the economy. However, this ETF has fewer stocks, and the ones it follows are larger and growing faster, so they play an even bigger role than the remainder of the stocks in the broad market index.

The economy is holding steady, and even though inflation is still creeping up faster than the Federal Reserve was anticipating this year, analysts agree it looks like the U.S. has avoided a recession. It’s unclear how quickly the Fed will begin to cut interest rates, but many of these companies are reporting strong results right now. They could be outperformers this year.

2. Investors are taking risks again

As investors embrace growth stocks, they’ve shown they’re willing to accept higher valuations. Even the S&P 500’s price-to-earnings (P/E) ratio has increased approximately 40% since the beginning of the current bull market to just under 28.

And this ETF isn’t for the risk-averse. Its portfolio sports a P/E ratio of 37, a sizable premium to the broad market. But its diversification, plus the value stocks included among its holdings, mitigates some of that risk.

For investors interested in growth stocks who are unsure exactly how to get started, the Vanguard Growth ETF can offer the right balance of risk and reward as you’ll see below.

3. The long-term performance tells the story

The stocks in this index are predominantly long-term winners that have a proven track record. So not only is the Vanguard Growth fund beating the S&P 500 during this bull market, but it has handily outperformed the broad market on a long-term basis. Since the fund’s inception 20 years ago, it has delivered an 11.2% average annual return.

As a growth-focused investment, investors must remember this ETF is likely to experience more volatility than the broad market. A long-term mindset is still essential to come out ahead.

Investing in the Vanguard Growth ETF is like investing in the American growth story. Since it follows an index, low-performing stocks can be replaced by stronger stocks over time. And the ETF’s ultra-low expense ratio of 0.04% means investors lose very little of their gains to the fund’s managers.

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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale, Home Depot, and Vanguard Index Funds – Vanguard Growth ETF. The Motley Fool has a disclosure policy.

3 Reasons to Buy the Vanguard Growth ETF Like There’s No Tomorrow was originally published by The Motley Fool