For Investors in Their 30s, Here's 1 Glorious Growth ETF to Buy Hand Over Fist and Hold Forever

The Morningstar U.S. Mega Cap Growth index exclusively measures the performance of 56 of the most valuable companies listed on American stock exchanges. Growth stocks often deliver high capital gains, setting them apart from value stocks, which appreciate more slowly but offer steady dividend income.

For an exchange-traded fund (ETF) that mimics the Morningstar growth index by holding the same stocks, there's the Vanguard Morningstar Mega Cap Growth ETF (NYSEMKT: MGK). Thanks to its portfolio, which features a high degree of exposure to the technology sector, the fund has comfortably outperformed the benchmark S&P 500 index every year, on average, since it was launched in 2007.

Aggressively pursuing growth can lead to high volatility, but that might be a worthwhile compromise for investors in their 30s, because it can make a substantial difference to their financial position when they reach retirement age. If you are in that age group, here's why the Vanguard Mega Cap Growth ETF might be worth buying now and holding forever.

Image source: Getty Images.

The most valuable U.S. companies are packed into one ETF

Over the last few decades, tech companies have been at the center of some of the world's fastest-growing industries, including personal computing, e-commerce, enterprise software, cloud computing, and artificial intelligence (AI). Therefore, although this Vanguard ETF invests across nine different sectors of the economy, over 72% of its assets are parked in tech stocks alone.

Nvidia, Apple, and Microsoft are the three most valuable companies in the technology sector, with a combined market capitalization of $13.3 trillion. They also happen to be the top three individual holdings in this Vanguard ETF, with a combined weighting of 36.2%.

Data source: Vanguard. Portfolio weightings are accurate as of July 31 and are subject to change.

Nvidia was a $360 billion company at the start of 2023, when demand began to surge for its data center graphics processing units (GPUs). They are the main chips used in AI training and inference workloads, and persistent supply shortages have given the company an unprecedented ability to dictate prices, significantly boosting its revenue and earnings. As a result, its stock has rocketed higher by 1,370% over the last three and a half years.

Microsoft and Apple haven't performed quite as well over the same period because they were already two of the world's largest companies heading into the AI boom. Nevertheless, both have more than doubled in value since early 2023, slightly outperforming the S&P 500.

Outside of its top three positions, the Vanguard ETF holds many other AI giants, including Alphabet, Amazon, Broadcom, Meta Platforms, and Tesla.

But it also offers a splash of diversification by holding the pharma Eli Lilly, payment leaders Visa and Mastercard, and Netflix.

The Vanguard ETF could help investors achieve a secure retirement

The Vanguard Morningstar Mega Cap Growth ETF has delivered a compound annual return of 13.6% since it was launched in 2007, outperforming the S&P 500, which returned an average of 10.9% per year over the same period.

Although that 2.7 percentage-point difference per year doesn't sound like much at face value, it would have a substantial impact in dollar terms over the long run thanks to the effects of compounding. Past performance isn't always a good indicator of future results, but below is how much money 35-year-old investors would have at retirement if they park $30,000 in the Vanguard ETF versus the S&P 500, assuming their average returns remain the same.

Calculations by author.

Therefore, focusing on growth could lead to an extra $700,000 in retirement compared to a more conservative approach. However, investors probably shouldn't put all their eggs in an ETF with such a highly concentrated portfolio, so it might be a good idea to diversify by having at least some exposure to an S&P 500 index fund, which will help offset the potential risks.

With that said, the Morningstar U.S. Mega Cap Growth index (and by extension, the Vanguard ETF) rebalances once per quarter, meaning companies that no longer meet its criteria are replaced by more suitable candidates. That lowers the risk of one or two poor-performing stocks weighing down its entire portfolio for a prolonged period, meaning it's likely to continue beating the S&P 500 over the long run.

It might even be a good idea to continue holding this ETF beyond retirement age, because with a large enough balance, the subsequent annual returns could provide a nice income to supplement life after employment.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Broadcom, Eli Lilly, Mastercard, Meta Platforms, Microsoft, Netflix, Nvidia, Tesla, and Visa. The Motley Fool has a disclosure policy.