History Says: Buying This 1 Growth ETF Today Could Set You Up for Life

If you're talking about an investment that can set you up for life, that probably means you'll be holding on to it for 20 to 30 years or even longer. Holding that long gives you a huge advantage. You can take greater risks in the pursuit of greater returns because you have more than enough time to ride out the highs and lows that will inevitably occur along the way.

If you are looking at exchange-traded funds (ETFs), I wouldn't necessarily choose a tech or artificial intelligence (AI) ETF at this point. Not because of their strong three-to-four-year run or because they might be overvalued, but because they're just a little too narrowly focused on one area of the market to make for a great choice right now.

Instead, I'm looking at the Vanguard Morningstar Growth ETF (NYSEMKT: VUG). It doesn't target tech specifically (although that's largely where it's invested at the moment). But it evolves to identify growth opportunities wherever they're occurring. That flexibility makes it more of an ideal long-term holding.

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VUG looks for growth across the U.S. economy

The Vanguard Morningstar Growth ETF uses several fundamental factors to define "growth." It looks at historical and forecast earnings growth, revenues per share, return on assets (ROA), and the investment-to-asset ratio.

Using a series of factors in the fund's selection process is ideal because it can help avoid any one metric painting a potentially inaccurate picture. These measures can serve as cross-checks to help identify the true growth opportunities.

I'm not the biggest fan of using earnings forecasts in the process because they can be notoriously inaccurate. But as an overall strategy, it looks pretty strong.

Growth investing has a strong track record

Since its 2004 inception, the Vanguard Morningstar Growth ETF has delivered a total return of around 1,280%, which compares very favorably to the 898% return of the State Street SPDR S&P 500 ETF (NYSEMKT: SPY) over the same time frame. Over the past 10 years, its 17.9% average annual return has easily outpaced SPY's 15.3%.

Of course, investors don't necessarily want to count on those returns going forward. These numbers happened during an unprecedented AI revolution that has thus far produced strong revenue and earnings growth. The next several decades could be different, but there's no denying that this ETF is where many of the economy's future innovators will end up. And that should lead to potentially higher returns over the long term.

How to incorporate growth stocks into your portfolio

If you're hesitant about investing in growth stocks now, given how well they've done over the past decade, consider dollar-cost averaging instead.

If you have $500 a month to invest, put it into the Vanguard Morningstar Growth ETF as part of a systematic investment plan. If stock prices go up, you'll have exposure. If they go down, you'll be able to buy more shares at lower prices. With decades to invest, this can actually help enhance returns over the long term.

The key is to maintain a long-term view. You'll need to accept that this fund is volatile. But if you ride out and avoid the temptation to sell along the way when times get rough, you should be able to build a substantial amount of wealth.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Morningstar Growth ETF. The Motley Fool has a disclosure policy.