1 Unstoppable Vanguard Index Fund That Consistently Beats the S&P 500
Key Points
The S&P 500 is the most widely followed American stock market index thanks to its diversified composition and consistent returns.
The S&P 500 Growth index exclusively invests in 216 of the best-performing growth stocks from the regular S&P 500, so it typically generates much higher returns.
The Vanguard S&P 500 Growth ETF tracks the performance of the Growth index, and it's likely to outperform the S&P 500 over the long run.
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The benchmark S&P 500 (SNPINDEX: ^GSPC) is made up of 500 companies from 11 different sectors of the economy. They include the world's largest technology companies operating at the forefront of the artificial intelligence (AI) revolution, in addition to some of the biggest retailers, banks, and more.
The S&P 500 has delivered a compound annual return of 10.5% (including dividends) since it was established in 1957, even after accounting for every sell-off, correction, and bear market along the way. Its strong returns and diverse composition are two reasons why experts like Warren Buffett recommend retail investors park their money in an S&P 500 index fund.
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But young investors with time on their side, or those who generally have a greater appetite for risk, might want to explore other options with an even higher growth potential. After all, even a couple of extra percentage points per year can result in life-changing returns over the long term.
Below, I'll share one Vanguard exchange-traded fund (ETF) that could be perfect for those investors.
Image source: Getty Images.
Meet the S&P 500 Growth index
The S&P 500 Growth index exclusively tracks 216 of the best performing growth stocks from the regular S&P 500. It selects those stocks based on factors like their momentum and the sales growth of the underlying companies. It rebalances once per quarter, removing stocks that no longer fit its criteria and replacing them with more suitable candidates.
Those unique features have contributed to its consistent outperformance relative to the S&P 500, but more on that later.
The Vanguard S&P 500 Growth ETF (NYSEMKT: VOOG) tracks the performance of the Growth index by holding the same stocks and maintaining similar weightings. Its top five holdings are leaders in high-growth areas like artificial intelligence (AI), and it assigns many of them much higher weightings than does the S&P 500:
|
Stock |
Vanguard ETF Weighting |
S&P 500 Weighting |
|---|---|---|
|
1. Nvidia (NASDAQ: NVDA) |
14.58% |
8.01% |
|
2. Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) |
8.17% |
5.22% |
|
3. Microsoft (NASDAQ: MSFT) |
6.41% |
6.45% |
|
4. Apple (NASDAQ: AAPL) |
5.57% |
6.99% |
|
5. Meta Platforms (NASDAQ: META) |
5.10% |
2.34% |
Data sources: Vanguard, State Street. Vanguard portfolio weightings are accurate as of Sept. 30, 2025, and are subject to change.
Over the last 10 years, those five stocks have delivered a median return of 787%, more than tripling the 220% gain in the S&P 500 over the same period. Nvidia has been the standout performer by a wide margin, so the index or ETF that assigned it a higher weighting over that period naturally delivered a better return, all else being equal.
NVDA data by YCharts
But the Vanguard S&P 500 Growth ETF isn't entirely about technology and AI. Financial stocks Visa, JPMorgan Chase, and Berkshire Hathaway are among its top 20 holdings, as are retail giants Costco Wholesale and Walmart. This offers investors a healthy splash of diversification.
The Vanguard ETF consistently beats the S&P 500
The Vanguard S&P 500 Growth ETF has delivered a compound annual return of 17% since its inception in 2010, crushing the average annual gain of 13.8% in the S&P 500 over the same period. Although the 3.2-percentage-point difference might not sound like much at face value, it made a huge impact in dollar terms:
|
Starting Balance in 2010 |
Compound Annual Return |
Balance in 2025 |
|---|---|---|
|
$10,000 |
17% (Vanguard ETF) |
$105,387 |
|
$10,000 |
13.8% (S&P 500) |
$69,523 |
Calculations by author.
Although AI stocks are driving high returns in the Vanguard ETF right now, other tech trends like cloud computing, enterprise software, and even the internet have contributed to the strong performance of the S&P 500 Growth index over the long run. As I mentioned earlier, the index rebalances once per quarter, so even if the AI boom slows down, new themes like robotics, autonomous vehicles, and perhaps quantum computing could pick up the slack.
The S&P 500 also rebalances each quarter, but its criteria isn't centered on the performance of its constituents. Instead, companies need to have a market capitalization of at least $22.7 billion, and they must be profitable to qualify for inclusion in the index. Their sales growth isn't taken into account, nor is the momentum in their stock price.
That is why the S&P 500 Growth index (and by extension, the Vanguard ETF) is likely to continue outperforming the regular S&P 500 over the long term, so investors who are looking for higher returns should consider parking some money in this fund.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, Berkshire Hathaway, Costco Wholesale, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, Visa, and Walmart. The Motley Fool 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.
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