If I Were in My 20s, I'd Buy This Unstoppable Vanguard ETF and Hold It Forever

The Morningstar U.S. Large Cap Growth index exclusively measures the performance of 146 of the most valuable growth companies listed on American stock exchanges. As their name implies, growth stocks typically deliver high capital gains, separating them from value stocks, which usually produce lower returns but provide dividend income.

The Vanguard Morningstar Growth ETF (NYSEMKT: VUG) is an exchange-traded fund (ETF) that mimics the Morningstar U.S. Large Cap Growth index by holding the same stocks. Because of its growth-oriented portfolio, which features a high degree of exposure to the technology sector, it has outperformed the benchmark S&P 500 (SNPINDEX: ^GSPC) index on average every year since its launch in 2004.

Focusing heavily on growth can lead to more volatility, but that might be a worthwhile trade-off for young investors in their 20s, because it can make a significant difference to their financial position when they eventually reach retirement. If I were that age today, here's why I'd buy the Vanguard Morningstar Growth ETF and hold it forever.

Image source: Getty Images.

America's fastest-growing companies packed into one ETF

Technology companies operate at the forefront of some of the world's fastest-growing industries. Enterprise software, cloud computing, and artificial intelligence (AI) are just some examples that have created tremendous value over the last 20 years. Therefore, although this Vanguard ETF invests across 11 different sectors of the economy, a whopping 69.2% of its assets are parked in the tech sector alone.

AI is a central focus for most of the companies in the Vanguard ETF's top 10 holdings. They include chipmakers, cloud providers, software developers, and more.

Data source: Vanguard. Portfolio weightings are accurate as of June 30, 2026, and are subject to change.

As far as AI companies go, none are growing quite as fast as those in the semiconductor industry. Nvidia's data center revenue increased by 92% year over year during its most recent reported quarter, while AMD's data center revenue soared by 107%. But Broadcom had both of them beat, with its most recent quarterly AI semiconductor sales surging by 143%. These three companies are among the top suppliers of the advanced chips and components required to train AI models and run inference workloads.

Alphabet, Microsoft, and Amazon are three of the top buyers of AI data center chips. They use this hardware to develop their own AI software, but they also rent computing capacity to other businesses for a fee through their respective cloud platforms, which has become a lucrative practice.

Tesla and Meta are also investing record amounts in AI infrastructure. Tesla is using it to further its autonomous driving and robotics models, while Meta continues to inject AI into its content recommendation algorithms on Facebook and Instagram to boost engagement.

The Vanguard Growth ETF has a great track record against the S&P 500

The Vanguard Morningstar Growth ETF has delivered a compound annual return of 12% since it launched in 2004, outpacing the S&P 500, which gained an average of 10.8% per year over the same period.

Although that 1.2 percentage-point difference doesn't sound like much at face value, it would make a huge difference in dollar terms in the long run thanks to the magic of compounding. Past performance isn't always a good indicator of future results, but below is how much money a 25-year-old investor would have at retirement if they park $20,000 in the Vanguard ETF versus the S&P 500, assuming the average returns remain the same.

Data source: Calculations by author.

Simply put, betting on growth could add an extra $650,000 in retirement. The good thing about the Morningstar U.S. Large Cap Growth index (and by extension, the Vanguard ETF) is that it rebalances once per quarter, meaning companies that no longer fit the criteria are removed and replaced with more suitable ones.

That means it's likely to remain a step ahead of more diversified indexes like the S&P 500 because it will always hold the highest-quality growth stocks, no matter their industry. Tech is likely to remain a dominant part of the Morningstar index, though, because there is an entire pipeline of emerging industries that could create significant value in the coming decades, including autonomous vehicles, robotics, and quantum computing.

As a result, it might be a good idea to hold this Vanguard ETF even beyond retirement age. With a large enough balance, the subsequent annual returns could provide a high income to enhance life after employment.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Broadcom, Eli Lilly, Meta Platforms, Microsoft, Nvidia, Tesla, and Vanguard Morningstar Growth ETF. The Motley Fool has a disclosure policy.