Why I Chose This Vanguard Growth Fund for My Roth IRA

A Roth IRA offers unique advantages for growth investing. Since withdrawals in retirement are tax-free, housing aggressive growth investments in a Roth can maximize the benefits of long-term capital appreciation. This is why I’ve made the Vanguard S&P 500 Growth ETF (NYSEMKT: VOOG) the cornerstone of my retirement strategy.

Let me explain why this fund deserves consideration as a Roth IRA anchor holding, and how it compares to Warren Buffett’s preferred S&P 500 index fund.

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A drawing of various retirement plans along with a growth chart.
Image source: Getty Images.

The Vanguard S&P 500 Growth ETF has delivered compelling returns, gaining 34.54% from Jan. 1 through Nov. 26, 2024, outpacing the broader S&P 500’s 27.66% return, including distributions and assuming reinvestment. The fund achieves this stellar performance by focusing on 234 growth-focused companies from within the S&P 500, selected based on factors like earnings expansion and momentum.

The fund’s technology-heavy portfolio reflects the digital transformation reshaping our economy. Information technology comprises nearly 50% of holdings, led by industry giants like Apple, Nvidia, and Microsoft. These companies’ sustained innovation and market leadership provide a strong foundation for continued growth.

Despite its growth tilt, the fund maintains high standards. The portfolio’s holdings have a 39.7% return on equity and 25.2% earnings growth rate. This combination of profitability and expansion potential helps justify the portfolio’s higher price-to-earnings ratio of 35 compared to the S&P 500’s 26.9 multiple.

Warren Buffett recommends a simpler approach: investing 90% of retirement savings in a low-cost S&P 500 fund like the Vanguard S&P 500 ETF (NYSEMKT: VOO). This strategy offers broader market exposure with an even lower 0.03% expense ratio.

Although the Vanguard S&P 500 ETF provides excellent diversification across 504 stocks, its blend of growth and value companies has historically produced lower returns than the growth-focused fund during strong market cycles. The trade-off comes in reduced volatility and deeper sector diversification.

Investment fees matter because they directly reduce your returns. The Vanguard S&P 500 Growth ETF charges an annual expense ratio of 0.10%, meaning you’ll pay $10 in fees per year on a $10,000 investment. In comparison, the Vanguard S&P 500 ETF charges just 0.03%, or $3 annually on the same investment.

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