It’s no secret that the market has been struggling over the past year, but it’s not all bad news. While nobody knows how long this downturn will last, it’s certain that a bull market is on the way. And the best way to take full advantage of the inevitable upswing is to invest right now, while prices are still low.
Growth ETFs can be a smart option to maximize your earnings. Each ETF contains dozens or even hundreds of stocks, which can limit your risk. But because the stocks in each fund have higher potential for growth, you could see lucrative earnings when the market recovers.
There are countless growth ETFs to choose from, but these three could be smart buys in 2023.
1. Vanguard Growth ETF
The Vanguard Growth ETF (NYSEMKT: VUG) contains 247 stocks from a variety of industries, but it’s primarily focused on the tech sector. The four largest holdings in the fund are Apple, Microsoft, Amazon, and Alphabet.
Over the past 10 years, VUG has earned an average return of 12.8% per year. While past performance doesn’t necessarily predict future returns, growth ETFs aim to earn above-average returns and are more likely to beat the market over time.
This ETF is one of the leaders in the growth ETF space, providing plenty of diversification at low costs — with a rock-bottom expense ratio of just 0.04%. Over decades, a low expense ratio could potentially save you tens of thousands of dollars in fees.
2. Invesco QQQ
Invesco QQQ (NASDAQ: QQQ) is one of the older growth ETFs, established in 1999. That kind of track record already gives it an advantage, but it also has other distinct perks and drawbacks, compared to the Vanguard Growth ETF.
Its 10-year average return is around 15.67% per year, substantially higher than VUG’s 12.8% return over the same time period.
However, it has a higher expense ratio of 0.20% and doesn’t provide as much diversification. QQQ only includes around 100 stocks, though its largest holdings are similar to VUG. With fewer stocks in the fund, though, you’re not as protected against volatility.
3. Vanguard Small-Cap Growth ETF
The Vanguard Small-Cap Growth ETF (NYSEMKT: VBK) is a little different from VUG and QQQ in that it focuses exclusively on smaller companies.
Small-cap stocks are inherently riskier than their larger counterparts. However, they also have more potential for growth. Large-cap stocks like Amazon and Apple may be safer, but considering they’re already enormous companies, it may be tougher for them to achieve stratospheric returns.
VBK includes nearly 700 stocks, and those holdings are fairly evenly distributed across a wide variety of industries. The other ETFs on this list are heavily weighted toward the tech sector.
This fund has seen lower returns recently, but its 10-year average is 9.26% per year. That said, if any of the stocks in this fund take off, you could potentially see lucrative returns.
Is a growth ETF right for your portfolio?
All three of these funds have unique advantages and disadvantages, and there’s no right or wrong answer as to where you should invest.
|Vanguard Growth ETF (VUG)||Invesco QQQ (QQQ)||Vanguard Small-Cap Growth ETF (VBK)|
|10-year average annualized returns||12.8%||15.67%||9.26%|
|Number of holdings||247||102||698|
Growth ETFs, in general, can be smart investments to maximize your returns, but it’s important to keep a long-term outlook. High-growth stocks can be especially susceptible to market volatility, so you could experience wild ups and downs in the short term. By holding your investments for several years and ensuring that the rest of your portfolio is properly diversified, you can minimize the effect of that volatility.
A bull market is coming eventually, and now is the time to prepare for it. By investing during the market’s low points, you’ll be well-positioned to take advantage of the upswing. And these three ETFs could be poised for serious growth when the market rebounds.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Katie Brockman has positions in Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Apple, Microsoft, Vanguard Index Funds-Vanguard Growth ETF, and Vanguard Index Funds-Vanguard Small-Cap Growth ETF. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.