This Vanguard ETF Makes It Easy to Invest in the "Magnificent Seven"

Key Points

• The Vanguard Mega Cap Growth Index Fund can be a great choice for tech investors.

• It has a high exposure to tech stocks -- in particular, the "Magnificent Seven."

• The fund has outperformed the market this year and it charges minimal fees.

• 10 stocks we like better than Vanguard World Fund - Vanguard Mega Cap Growth ETF ›

Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla are the leading tech companies in the world, often referred to as the "Magnificent Seven." They've generally been excellent investments to hang on to recently. Over the past five years, they're all up by at least 50%, and only one (Amazon) has underperformed the S&P 500 during that stretch.

You could invest in each of those stocks individually. But a simpler and more diversified option can be to invest in an exchange-traded fund (ETF) that has a big position in these and other stocks. That can reduce your overall risk to the Magnificent Seven, while still benefiting from their growth.

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An ETF that can be helpful for this purpose is the Vanguard Mega Cap Growth Index Fund ETF (NYSEMKT: MGK).

Image source: Getty Images.

The ETF has a total of 69 stocks in its portfolio

The big advantage in owning the Vanguard Mega Cap Growth Index Fund instead of investing into the Magnificent Seven individually is that you'll get exposure to many more stocks. Broadcom, Eli Lilly, and Visa are just some examples of the top stocks that are also among the ETF's largest holdings.

However, the Magnificent Seven account for around 60% of its total portfolio, so you'll definitely want to feel comfortable with these stocks as they will have a big impact on the ETF's overall performance. Its three largest holdings are Nvidia, Microsoft, and Apple. Together, they account for just under 40% of the entire portfolio.

There is some diversification with the ETF but by no means is it overdiversified or will it shield you from the volatility that can sometimes come with investing in tech stocks.

The fund has outperformed the market this year

Since the start of the year, the S&P 500 has risen by over 10%. Meanwhile, the Vanguard Mega Cap Growth ETF is up by more than 13%, and it has even outperformed three of the Magnificent Seven stocks -- Amazon (8%), Apple (-5%), and Tesla (-14%). And therein lies a big advantage of buying the ETF, as you don't have to worry about picking individual stocks and trying to predict which ones will do well.

While you could invest in all of the Magnificent Seven, it can be a lot easier to allocate one investment to all those similar stocks as opposed to having seven different positions and tracking and managing them individually. ETFs can help simplify your investing strategy and can make sense if you don't have the time or you just don't want to overcomplicate your portfolio with too many different holdings.

In the past, the benefit of doing it yourself was to avoid fees. However, the Vanguard ETF charges a minimal expense ratio of 0.07%. At such a low rate, there's less of an incentive to manage all of the holdings yourself as the fees won't be significant. On a $10,000 investment, that translates into an annual cost of just $7.

Is the Vanguard Mega Cap Growth Index Fund a good option for your portfolio?

The Vanguard Mega Cap Growth Index Fund can be ideal for you if you just want a bit more diversification than investing in the Magnificent Seven stocks directly, or if you perhaps don't want to invest into each stock individually. In that case, the ETF can make a lot of sense.

But if you're not comfortable with so much exposure to tech and high-valued stocks, then you may want to consider investing in S&P 500 ETFs, which give you a broader mix of stocks. The downside will be that if tech stocks are soaring, your returns may be much more modest in comparison. That's the trade-off that comes with diversification, however. In exchange for the safety, you have to sacrifice some potential upside.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla, and Visa. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.