1 Supercharged Vanguard ETF That Can Turn $250 a Month Into $670,000 or More in 25 Years
Having as little as $250 a month available to invest over the long term can mean the difference between a financially stressful retirement and a comfortable one. Finding that available cash is admittedly not easy given rising expenses brought on by inflation. But the average investor might be surprised by how much cash becomes available just by minor trims to discretionary spending.
If you can free up the cash, I can show you how to turn a monthly $250 investment into more than $670,000 by 2049, and it won't require taking on significant risk to do so. If you're willing to stay the course with this long-term plan, the payoff can be substantial.
ETFs offer diversity and the chance for solid long-term returns
You managed to find that $250 in spare monthly cash. Now that you have it, you might be concerned about losing it with a risky stock investment. There are valid reasons for caution. After all, individual stocks can be risky (even some of the best ones) and there's always the chance you will lose money.
This is where exchange-traded funds (ETFs) can help. ETFs invest in a group of stocks pulled together based on specific criteria. Buying into an ETF spreads the investment among multiple stocks, mitigating the risk. It's far less likely that all the stocks in the fund will do poorly at the same time. ETFs also take away the burden of having to keep track of how each individual stock does. A fund manager takes care of that task, working to remove losers and add winners based on the fund's criteria. Over the long term, this tends to improve the fund's average performance.
The S&P 500 index has a decades-long average annual return of 9.7%. That average factors in negatives like market crashes, wars, pandemics, and various other turbulence along the way. It also factors in positives like last year's 24% growth rate. ETFs that mimic this index produce similar average returns. The solid return is based as much on the holding of good stocks long-term as it is on specific good stocks in the index.
A top Vanguard fund to invest in on an ongoing basis
A 9.7% average annual return is nothing to sneeze at and will result in you doubling your investment in about 7.5 years. But what if you want to get a return higher than the S&P 500 long-term average?
One option is the Vanguard Information Technology ETF (NYSEMKT: VGT). As its name suggests, the passively managed fund focuses on the leading information technology stocks. Its top three holdings are Apple, Microsoft, and Nvidia. Based on the weighting criteria for stocks in this ETF, those three stocks account for 44% of the fund's performance.
That 44% share for just three stocks might suggest it lacks diversity. But such is not the case. This Vanguard ETF owns 300 stocks overall. This diversity offers some mitigation for poor performance by one of the larger holdings. Still, this particular ETF is admittedly less diverse than an S&P 500-based ETF might be. The fund is somewhat vulnerable, for instance, if tech stocks struggle. But it also benefits when tech stocks do well. A long-term holding strategy makes this lower level of diversity manageable.
Since this ETF originated in January 2004, tech stocks have consistently outperformed the broader market. And this ETF reflects that. the ETF has risen by 1,280%, which averages out to a compound annual growth rate of a little over 14%.
Data by YCharts.
Investing in the tech fund can lead to significant gains
At the start of this report, the discussion focused on turning $250 a month over 25 years into $670,000. Here's where all this discussion of ETFs and performance ties it all together. Investing that $250 monthly into the Vanguard Information Technology ETF and its 14% average annual return can eventually result in $670,000 if you buy and hold.
Through the effects of compounding interest, your portfolio's gains can grow significantly faster than if you were to just put money into a low-yield bank savings account. The chart below shows how much your investment would be worth in the future based on a modest 1% rate you might earn at a bank versus a potential 14% annual return with a growth-focused fund such as the Vanguard Information Technology ETF. These returns assume investments of $250 a month, compounded monthly (rounded to the nearest dollar).
| Years | Total Invested | 1% Return | 14% Return | Difference |
|---|---|---|---|---|
| 5 | $15,000 | $15,375 | $21,549 | $6,174 |
| 10 | $30,000 | $31,537 | $64,767 | $33,230 |
| 15 | $45,000 | $48,529 | $151,447 | $102,918 |
| 20 | $60,000 | $66,390 | $325,292 | $258,902 |
| 25 | $75,000 | $85,168 | $673,957 | $588,789 |
Calculations by author.
There are, of course, no guarantees that the tech fund will continue to average a 14% return over the next 25 years. And because it's an average, the final result won't be exactly the same because stock performance varies from year to year. But it should give you some idea of the potential growth that could come. Even if it falls short of those gains, the odds are still high that you'll end up in a much better financial position than if you just kept the money stored at your bank.
Monthly investments can create great habits and lead to significant returns
A $250 monthly investment can go a long way in growing your wealth in the long run. 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 the habit going.
But by making investing part of your monthly budget, you are 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 market-beating returns in the long run.
Should you invest $1,000 in Vanguard World Fund - Vanguard Information Technology ETF right now?
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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