Investing in the Vanguard Growth ETF During the 2025 Bull Market

The S&P 500 has enjoyed remarkable back-to-back annual gains exceeding 25% in 2023 and 2024, including dividends. This achievement has only occurred once before since the index was created in 1957, indicating a vibrant bull market.

As the S&P 500 is market cap-weighted, the performance of larger companies significantly affects the overall index more than smaller ones. A substantial portion of the recent gains can be attributed to the largest firms in the index, particularly those in the technology sector, which are leading advancements in areas such as artificial intelligence (AI).

One investment option that stands out in this landscape is the Vanguard Growth ETF (VUG 0.15%). This exchange-traded fund exclusively invests in large and megacap stocks, and it has consistently outperformed the S&P 500 since its launch in 2004. This trend is expected to persist into the future.

For investors with an extra $430—funds that are not earmarked for immediate use—purchasing a share of this ETF in 2025 could be a solid long-term strategy.

Heavy Tech Exposure in the Vanguard ETF

The Vanguard Growth ETF encompasses 182 stocks across 12 sectors, with a notable emphasis on technology, which makes up approximately 56.8% of its portfolio value. Noteworthy names like Apple, Nvidia, and Microsoft dominate the fund, each boasting market caps exceeding $3 trillion. Together, these three companies account for an impressive 32.7% of the ETF's total holdings.

Company	Portfolio Weighting
1. Apple	11.52%
2. Nvidia	10.68%
3. Microsoft	10.54%

As of November 30, 2024, these weightings highlight the ETF's strong tech orientation, particularly given that the top 10 holdings—many of which are integral to the ongoing AI movement—saw an average return of 49.8% in 2024. Consequently, it is not surprising that the ETF recorded a remarkable 32.6% overall gain last year, outpacing the S&P 500 by an even larger margin than usual.

Nvidia stands out within the AI sector due to its cutting-edge graphics processors (GPUs), which play a crucial role in AI development. Ongoing demand for Nvidia's cutting-edge AI chips will likely drive its stock price upward in 2025.

Apple and Microsoft are also critical players in the AI landscape. With over 2.2 billion active devices, Apple is poised to be a major distributor of AI technology, particularly through its Apple Intelligence software rolled out on its latest devices. Conversely, Microsoft's Azure cloud platform is becoming indispensable for businesses and developers looking to leverage AI tools and resources.

In addition, Amazon's cloud services are evolving into leaders in AI infrastructure, while Meta Platforms is gaining traction with its widely-used open-source large language model, Llama.

Investing in this diverse selection of stocks comes at a minimal cost, as the Vanguard ETF boasts a mere 0.04% expense ratio, giving it a significant edge over the industry average of 0.95%. This lower cost can enhance investment returns over time.

Paved Path to Outperforming the S&P 500

The Vanguard ETF has achieved a compound annual return of 11.7% since its inception in 2004, surpassing the S&P 500's average annual gain of 10.4%. Over the past five years, its performance has accelerated to 18.3% per year, driven largely by the increasing dominance of technology companies, compared to the S&P's average return of 15.2% in the same period.

This widening performance gap suggests the Vanguard ETF is likely to maintain its advantageous position relative to the S&P going forward. Critical to this success will be the advancements in AI technology.

According to Nvidia's CEO, Tech companies could potentially spend up to $1 trillion in the next four years to enhance their infrastructures in response to AI demands. This investment will not only benefit Nvidia but also companies like Broadcom and Advanced Micro Devices, both of which are included in the Vanguard ETF's roster.

Global consulting firm PwC anticipates that AI adoption may contribute an additional $15.7 trillion to the global economy by 2030. This growth will necessitate a collaborative effort from hardware manufacturers, cloud service providers, and software firms including Microsoft, Amazon, and Meta.

Nonetheless, there is a risk that all these companies—and consequently the Vanguard ETF—could face downturns if the AI sector does not meet its lofty expectations. However, diversifying investments across a range of stocks and funds can help mitigate this risk.

Investors looking to take advantage of the S&P 500's momentum would find the Vanguard Growth ETF a worthy addition to their portfolio as they navigate the future of the bull market.

ETF, Investment, Market