One of the best ways to grow your wealth is to invest in exchange-traded funds (ETFs). These products offer investors exposure to a basket of stocks, at a fraction of the cost it would take to purchase each one individually.
Let’s examine two simple ETFs that can help anyone grow their nest egg.
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Vanguard Growth ETF
First up is the Vanguard Growth ETF (VUG 0.68%).
VUG Total Return Level data by YCharts
Right off the bat, this Vanguard fund offers long-term investors something that will grab their attention: Its 20-year compound annual growth rate (CAGR) is 11.7%. That beats the S&P 500, which logged a 10.4% CAGR over the same period. In dollar terms, a $1,000 investment made in the Vanguard fund in 2004 would be worth almost $10,000 today, while the same investment made in the S&P 500 would be worth less than $7,900.
Today, the Vanguard fund is heavily weighted toward “Magnificent Seven” stocks like Apple, Nvidia, Microsoft, and Amazon. Other top holdings include Costco Wholesale, Eli Lilly, and Visa.
| Company Name | Symbol | Percentage of Holdings |
|---|---|---|
| Apple | AAPL | 12.1% |
| Microsoft | MSFT | 11.4% |
| Nvidia | NVDA | 10% |
| Amazon | AMZN | 6% |
| Alphabet | GOOG/GOOGL | 6% |
| Meta Platforms | META | 4.7% |
| Eli Lilly | LLY | 2.9% |
| Tesla | TSLA | 2.7% |
| Visa | V | 1.7% |
| Mastercard | MA | 1.6% |
| Broadcom | AVGO | 1.5% |
| Costco | COST | 1.5% |
| Netflix | NFLX | 1.2% |
| Advanced Micro Devices | AMD | 1% |
Data source: Vanguard Group.
While the fund holds many megacap stocks with excellent growth rates, investors won’t find much in the way of dividend-paying stocks. Overall, the fund pays a very meager dividend, resulting in a dividend yield of only 0.5% — meaning a $1,000 investment will only generate about $5 in annual dividend income.
Yet, what the fund lacks in dividend payments, it makes up for with its expense ratio. The fund has an expense ratio of only 0.04%. That means investors only pay $0.40 per year for every $1,000 invested in the fund.
In summary, this Vanguard fund boasts several features that make it worth considering for long-term investors. It has outperformed the benchmark S&P 500 index over 20 years, it charges low fees, and it pays a modest dividend. Those reasons make it a solid choice for anyone looking for a lifetime ETF.
Schwab US Dividend Equity ETF
Next, there’s the Schwab US Dividend Equity ETF (SCHD -0.45%).
SCHD Total Return Level data by YCharts
Let me be clear: This Schwab fund isn’t for growth-oriented investors. Yet, this fund is worth considering for investors looking to generate income from their investment.
Rather than loading up on growth-oriented stocks like Nvidia, Microsoft, and Amazon, this fund focuses on value stocks that pay dividends. Among its top holdings are Chevron, Altria Group, and Verizon Communications — some of the biggest and most well-known dividend stocks around.
| Company Name | Symbol | Percentage of Holdings |
|---|---|---|
| BlackRock | BLK | 4.5% |
| Bristol Myers Squibb | BMY | 4.5% |
| Cisco Systems | CSCO | 4.5% |
| Chevron | CVX | 4.4% |
| Home Depot | HD | 4.3% |
| Texas Instruments | TXN | 3.9% |
| Verizon Communications | VZ | 3.8% |
| United Parcel Service | UPS | 3.7% |
| Altria Group | MO | 3.6% |
| Lockheed Martin | LMT | 3.6% |
| PepsiCo | PEP | 3.6% |
| Pfizer | PFE | 3.5% |
| Amgen | AMGN | 3.4% |
| Coca-Cola | KO | 3.3% |
| AbbVie | ABBV | 3.3% |
Data source: Charles Schwab.
Accordingly, the fund pays out a hefty portion of dividends. Its current dividend yield is 8.4%. That means a $1,000 investment in the fund should generate roughly $84 in annual income.
On top of that, the fund keeps its expenses low. Its expense ratio is only 0.06%, meaning that a $1,000 investment in the fund results in only $0.60 in annual fees.
Of course, there is a downside. While dividend income is great, dividend stocks have been out of favor with investors for years. As a result, dividend-focused funds, like this Schwab fund, have underperformed the broader market.
For example, over the last decade, this fund has generated a CAGR of 11.7%. That’s not bad. Yet, it’s significantly below what the S&P 500 generated over the same period (13.2%). In dollar terms, even with the effects of dividend payments included, a $1,000 investment in the S&P 500 would now be worth about $500 more than what the Schwab fund would have generated.
SCHD Total Return Level data by YCharts
The Schwab fund isn’t an ETF for every investor. However, for those who would like to generate income from their investment, while also generating growth, this fund offers a nice balance of both. Investors looking for a lifetime of income would be smart to consider adding some shares of this ETF.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jake Lerch has positions in Alphabet, Altria Group, Amazon, Coca-Cola, Lockheed Martin, Nvidia, Tesla, United Parcel Service, and Visa. The Motley Fool has positions in and recommends AbbVie, Advanced Micro Devices, Alphabet, Amazon, Apple, Bristol Myers Squibb, Chevron, Cisco Systems, Costco Wholesale, Home Depot, Mastercard, Meta Platforms, Microsoft, Netflix, Nvidia, Tesla, Texas Instruments, Vanguard Index Funds-Vanguard Growth ETF, and Visa. The Motley Fool recommends Amgen, Broadcom, Lockheed Martin, United Parcel Service, and Verizon Communications and recommends the following options: long January 2025 $370 calls on Mastercard, long January 2026 $395 calls on Microsoft, short January 2025 $380 calls on Mastercard, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
