1 Supercharged Vanguard ETF That Can Turn $250 a Month into $670,000 or More in 25 Years

Having as little as $250 per month available to invest for the long term can mean the difference between a financially stressful retirement and a comfortable one. Of course, finding that cash on hand isn’t easy given the rising expenses caused by inflation. But the average investor might be surprised at how much cash becomes available through just minor cuts in discretionary spending.

If you can spare the money, I can show you how to turn a $250 monthly investment into more than $670,000 by 2049, and it won’t require you to take any significant risks to do so. If you are willing to stay the course with this plan for the long term, the payoff can be substantial.

ETFs offer diversity and the chance for solid long-term returns

You managed to find that $250 in monthly spare cash. Now that you have it, you may worry about losing it with a risky stock investment. There are good reasons for caution. After all, individual stocks maybe be risky (even some of the best ones) and there’s always a chance you’ll lose money.

This is where exchange-traded funds (ETFs) can help. ETFs invest in a group of stocks put together based on specific criteria. Buying an ETF spreads the investment across several stocks, mitigating risk. It is much less likely that all stocks in the fund will do poorly at the same time. ETFs also remove the burden of keeping track of how each individual stock is performing. A fund manager handles this task, working to weed out losers and add winners based on the fund’s criteria. In the long run, this tends to improve the average performance of the fund.

The S&P 500 the index has an average annual return of 9.7%. On average, there are downsides like market crashes, wars, pandemics, and various other turbulence along the way. It also considers positives such as last year’s 24% growth rate. ETFs that track this index produce similar average returns. Solid returns are based on holding good stocks for the long term as well as certain good stocks in the index.

A top Vanguard fund to invest in continuously

An average annual return of 9.7% is nothing to sneeze at and will double your investment in about 7.5 years. But what if you want to earn a higher return than the long-term S&P 500 average?

An option is Vanguard Information Technology ETF (VGT 0.63%). As the name suggests, the passively managed fund focuses on the top stocks in information technology. His first three holdings are Apple, Microsoftand Nvidia. Based on the weighting criteria for the stocks in this ETF, these three stocks account for 44% of the fund’s performance.

That 44% share of just three stocks might suggest it lacks diversity. But that is not the case. This Vanguard ETF holds 300 stocks in total. This diversity provides some mitigation for the poor performance of one of the larger holdings. However, this particular ETF is admittedly less diverse than an ETF based on the S&P 500 might be. The fund is somewhat vulnerable, for example, if tech stocks experience trouble. But it also benefits when tech stocks do well. A long-term holding strategy makes this lower level of diversity manageable.

Since this ETF debuted in January 2004, tech stocks have consistently outperformed the overall market. And this ETF reflects that. The ETF is up 1,280%, representing a compound annual growth rate of just over 14%.

Data by YCharts.

Investing in the technology fund can lead to significant gains

At the beginning of this report, the discussion focused on turning $250 per month over 25 years into $670,000. Here’s where all this talk about ETFs and performance ties it all together. Investing that $250 monthly in the Vanguard Information Technology ETF and its average annual return of 14% can eventually add up to $670,000 if you buy and hold.

Through the effects of compound interest, your portfolio earnings can grow significantly faster than if you were to put money in a low-yielding bank savings account. The chart below shows how much your investment would be worth in the future, based on a modest 1% rate you can earn at a bank, versus a potential annual return of 14% with a growth-focused fund, as would be the Vanguard Information Technology ETF. These returns assume investments of $250 per month, compounded monthly (rounded to the nearest dollar).

Calculations by author.

Of course, there are no guarantees that the tech fund will continue to average 14% over the next 25 years. And because it’s an average, the bottom line won’t be exactly the same because the stock’s performance varies from year to year. But it should give you an idea of ​​the potential growth that could come. Even if you don’t achieve these gains, chances are you’ll still be in a much better financial position than if you kept the money in your bank.

Monthly investments can create great habits and lead to significant returns

A monthly investment of $250 can go a long way in growing your wealth over the long term. And it can be a good habit to keep up over the years. If you only invest sporadically, it can be easy to forget to keep up the habit.

But if investing is part of your monthly budget, you’re more likely to be able to stay the course. And the Vanguard Information Technology ETF gives you a good place to put that money with its potential to generate some long-term market returns.