Key Points
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Investing in an S&P 500 index fund is one of the surest ways to build wealth in the stock market over the long term.
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But young investors in their 20s can benefit from targeting growth stocks in pursuit of higher returns, even if it leads to more volatility.
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The Vanguard Morningstar Mega Cap Growth ETF can help young investors supercharge their retirement fund.
- 10 stocks we like better than Vanguard Morningstar Mega Cap Growth ETF ›
The S&P 500 (SNPINDEX: ^GSPC) is an index of 500 stocks from 11 different sectors of the U.S. economy. It has delivered a compound annual return of about 10% since it was established in 1957, even after accounting for every sell-off, correction, and bear market along the way. Therefore, buying an S&P 500 index fund is one of the surest ways to build wealth in the stock market over the long term.
However, young investors in their 20s have time on their side, so they might be willing to endure a little more volatility for an opportunity to earn higher returns. The Vanguard Morningstar Mega Cap Growth ETF (NYSEMKT: MGK) is an exchange-traded fund (ETF) that exclusively holds 56 of the U.S.’s most valuable growth stocks, and thanks to its high degree of exposure to the technology sector, it has outperformed the S&P 500 every year, on average, since it launched in 2007.
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If I were in my 20s, here’s why I’d buy the Vanguard ETF with the intention of holding it forever.
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The Vanguard ETF has 72% of its assets parked in technology stocks
Growth stocks tend to generate high capital gains, separating them from value stocks which typically offer more modest returns supplemented by dividend income. Most technology companies fall into the growth category, because rather than returning money to shareholders, they prefer to reinvest their profits back into their businesses to create more momentum.
Although the Vanguard Morningstar Mega Cap Growth ETF invests across nine different economic sectors, it has a whopping 73% of its assets parked in technology stocks. All three of its top holdings are from the tech sector, and they alone have a combined weighting of 37%.
|
Stock |
Vanguard ETF Portfolio Weighting |
|---|---|
|
1. Nvidia |
14.29% |
|
2. Apple |
13% |
|
3. Microsoft |
9.96% |
Data source: Vanguard. Portfolio weightings are accurate as of Aug. 31, 2026, and are subject to change.
Nvidia was valued at $360 billion at the start of 2023, but it’s now the world’s largest company with a market capitalization of $5.4 trillion. The incredible increase in value comes on the back of soaring demand for the company’s graphics processing units (GPUs) for data centers, which are the primary chips used in artificial intelligence (AI) training and inference workloads. Nvidia’s Chief Executive Officer Jensen Huang recently said chip sales could double next year, so there might be plenty more room for upside in its stock.
Apple’s market cap of more than $4.7 trillion makes it the world’s second-largest company. More than 2.5 billion Apple devices are active worldwide, placing the company in a great position to dominate the consumer segment of the AI race. It continues to roll out its Apple Intelligence suite of artificial intelligence (AI) features and applications, which enhance the user experience on the iPhone, iPad, and Mac line of computers.
Microsoft has a market cap of $3.7 trillion, so it’s the world’s fourth-largest company (behind Alphabet in third, which also features in this ETF). Microsoft developed the Copilot virtual assistant and embedded it into legacy software products like Windows and 365 (Word, Excel, and PowerPoint). The company’s Azure cloud platform is also a top destination for enterprises seeking the tools required to develop and deploy AI software.
Broadcom, Advanced Micro Devices, and Palantir Technologies are just a few of the other tech giants in this Vanguard ETF. But the fund also holds many stocks from tech-adjacent sectors, including Amazon, Meta Platforms, and Tesla.
The Vanguard ETF can help young investors supercharge their retirement fund
The Vanguard Morningstar Mega Cap Growth ETF has delivered a compound annual return of 13.7% since launching in 2007, handily beating the S&P 500 which returned an average of 10.9% per year over the same period.
The 2.8 percentage-point difference in annual returns might not sound like much, but it would make a significant impact in dollar terms in the long run thanks to the effects of compounding. Past performance isn’t always a good indicator of future results, but below is how much money a 25-year-old investor would have at retirement if they put $10,000 in the Vanguard ETF versus the S&P 500, assuming their average returns stay the same.
|
Balance At Age 25 |
Compound Annual Return |
Balance At Age 65 |
|---|---|---|
|
$10,000 |
13.7% |
$1,699,881 |
|
$10,000 |
10.9% |
$626,991 |
Calculations by author.
Therefore, young investors who focus on growth could wind up with more than $1 million in additional retirement savings compared to those who take a more conservative approach. However, betting the farm on an ETF with such a concentrated portfolio might not be wise, because it will be vulnerable to significant downside if the technology sector hits a speed bump. It might be a good idea to have a little bit of exposure to an S&P 500 index fund to mitigate that potential risk.
Fortunately, the Vanguard ETF rebalances once per quarter by replacing companies that no longer meet its criteria with more suitable candidates. This reduces the risk that one or two plunging stocks will have a prolonged negative effect on its returns, so it’s likely to continue beating the S&P 500 over the long term.
As a result, holding this ETF beyond retirement age is a strategy worth considering, because the subsequent annual returns could provide a solid income to support life after employment.
Should you buy stock in Vanguard Morningstar Mega Cap Growth ETF right now?
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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 Tesla. The Motley Fool has a disclosure policy.
