Index funds are typically viewed as unexciting counterparts to individual stocks. However, as the saying goes, “Not all that glitters is gold”. While these funds might seem mundane, they are far from ineffective investments. A well-diversified index fund that accurately shadows a suitable benchmark can counteract concentration risk while generating significant wealth for those who invest with patience.
Key Takeaway: It’s crucial to understand the distinction between dull and detrimental investments. Two index funds currently under the spotlight are the Vanguard Total Stock Market ETF (VTI -0.29%) and the Vanguard Mega Cap Growth ETF (MGK -0.18%). With the S&P 500 (SNPINDEX: ^GSPC) on the verge of embracing a fresh bull market, it’s an opportune moment to consider purchasing these funds.
Hartford Funds has documented an average return of 186% during the preceding nine bull markets for the S&P 500. Given that this index encapsulates approximately 80% of all publicly traded U.S. stocks by market cap, a rise in the S&P 500 typically translates to a surge in the mentioned index funds.
Zooming in on the Vanguard Total Stock Market ETF
The Vanguard Total Stock Market ETF offers exposure to over 3,800 prominent U.S. firms, spanning all 11 market sectors. This distribution ensures that investors effectively invest in the broader U.S. economy.
Remarkable Remarks: Jamie Dimon, the CEO of JPMorgan Chase, hailed America as the globe’s leading, most affluent, and most inventive economy. Similarly, Warren Buffett highlighted America’s unwavering prowess in commerce and innovation.
Top 10 Holdings:
- Apple: 6.7%
- Microsoft: 5.8%
- Alphabet: 3%
- Amazon: 2.6%
- Nvidia: 2.3%
- Tesla: 1.6%
- Meta Platforms: 1.5%
- Berkshire Hathaway: 1.4%
- UnitedHealth Group: 1%
- ExxonMobil: 1%
Over the past ten years, this ETF has presented an impressive 205% return, translating to an annual yield of 11.78%.
Insight into the Vanguard Mega Cap Growth ETF
This ETF encompasses around 90 major U.S. firms from 10 of the 11 stock sectors. Notably, a substantial 75% of its assets are anchored in the information technology and consumer discretionary domains.
Top 10 Holdings:
- Apple: 16.2%
- Microsoft: 14.1%
- Alphabet: 7.3%
- Amazon: 6.3%
- Nvidia: 5.1%
- Tesla: 3.9%
- Meta Platforms: 3.4%
- Eli Lilly: 2.2%
- Visa: 2.2%
- Mastercard: 1.9%
In a decade, this growth-focused index fund has skyrocketed by 310%, averaging an annual return of 15.14%.
Market Dynamics and Forward-looking Sentiments
Emerging from a bear market, while investors remain wary of the nascent bull market, there are multiple positive indicators. Despite brief setbacks and volatility, overarching optimism persists, underscored by impressive Q2 earnings and the standout performance of AI stocks.
Recent inflation data and the Federal Reserve’s decisions have influenced market dynamics. However, the prevailing sentiment remains upbeat, and the market trajectory appears promising. Coupled with diminished recession risks, the new bull market seems set for resilience.
Conclusion
Whether you’re an investor leaning towards the expansive Vanguard Total Stock Market ETF or the more concentrated Vanguard Mega Cap Growth ETF, the potential benefits are evident. As the S&P 500 inches towards a record high and the U.S. stock market continues to promise growth, these index funds represent a strategic and informed investment choice.
