The new year is a fantastic time to reevaluate your investment strategy. With the market in recession, now may be the time to buy.
However, it is more important than ever to choose your investments wisely. If a recession is on the horizon, some stocks may not be able to recover. But with the right investments, you can invest now at a steep discount and potentially see big returns when the market rebounds.
While everyone’s investment strategy differs, there’s one ETF I’m stocking up on in 2023: the Vanguard Growth ETF (seen 2.34%).
How a growth ETF can boost your savings
A growth ETF is a fund that only includes stocks with above-average growth potential. The Vanguard Growth ETF aims to track the performance of the CRSP US Large Cap Growth Index and includes 247 stocks from various sectors.
Nearly half of the fund is made up of tech stocks, and the largest holdings include Apple, Microsoft, Amazonand Alphabet. By investing in this ETF, you own a stake in all of these companies.
The biggest advantage of growth ETFs is that they are often able to beat the market. In fact, since the Vanguard Growth ETF’s inception in 2004, it has posted returns of over 313% – compared to the S&P500That’s around 233% return in that time frame.
In other words, if you had invested $10,000 in the Vanguard Growth ETF in 2004, you would have over $41,000 today, compared to $33,000 with the S&P 500.
Why now might be a good time to buy
When the market is down, it can be difficult to invest. But right now it may actually be a fantastic buying opportunity, as prices are lower than they have been in a long time.
The Vanguard Growth ETF is currently priced at around $209 per share, up from around $308 per share a year ago. By investing now, you are buying the same ETF, but at a discount of nearly $100 per share.
Plus, when you buy during downturns, you’re ready to take advantage of the inevitable market rebound. For example, suppose you invested in this ETF in early 2009, at its lowest point during the Great Recession. In the next year alone, you would have seen returns of almost 70%. In two years, you would have almost doubled your money.
Of course, no one can say for sure how this bear market will play out, and there is no guarantee that the future performance of this ETF will be similar to that of the past. But by investing during low periods, it is easier to take advantage of market upswings.
Is this the right ETF for you?
Before you buy, there are a few cons to consider. On the one hand, this fund may be subject to intense short-term volatility.
All stocks will see declines in the short term. This ETF, however, is heavily weighted towards tech stocks (which are famous for their ups and downs), so you’re likely to see larger swings.
This isn’t necessarily a bad thing, as investing is a long-term game. If you’re willing to hold this investment for several years (or even decades), short-term volatility probably won’t matter as much. But if the rollercoaster of ups and downs has you losing sleep, this ETF might not be the best choice.
Also, it is wise to ensure that the rest of your life the portfolio is well diversified if you choose to invest in this ETF. Growth ETFs often generate higher returns than their more established counterparts, but they are also riskier. With a balanced portfolio, you can enjoy these above-average returns, while limiting your risk.
The Vanguard Growth ETF can be a fantastic addition to your portfolio, and given enough time, it could potentially help you make a lot of money. By understanding the risks and benefits, you can decide if it’s right for you.
Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Katie Brockman holds positions in Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Apple, Microsoft and Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool recommends the following options: long calls $120 in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.
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