Invest for long-term growth with low-cost funds.
Buy-and-hold investing often goes hand in hand with a value investing strategy with which the goal is finding investments that are primed to appreciate over the long term. Growth mutual funds and exchange-traded funds can also have a place in a buy-and-hold portfolio, if you’re choosing the right ones. “A growth mutual fund provides a diversified approach to accessing some of the country’s fastest-growing companies,” says John Smallwood, senior wealth advisor and president of Smallwood Wealth Management. Investing in a growth fund or two alongside index funds can help balance active and passive strategies. If you’re interested in growth as a buy-and-hold investor, here are seven of the best growth funds to buy.
Vanguard Growth Index Fund Admiral Shares (ticker: VIGAX)
Growth mutual funds are the perfect choice for buy-and-hold investors in volatile markets because they provide less risk than individual stocks and stronger returns compared with other types of funds, says Adam Enfroy, an investor and digital marketing influencer. His top growth fund pick is VIGAX. The fund’s largest holdings include Microsoft (MSFT), Apple (AAPL), Amazon.com (AMZN) and Facebook (FB). VIGAX is one of Vanguard’s strongest performers, with a 10-year trailing return of 16.77%. Like other Vanguard index funds, VIGAX is a low-cost option; the expense ratio is just 0.05%. It also has a low holdings turnover ratio of 11%, which could work well for a buy-and-hold strategy.
Vanguard Dividend Growth Fund (VDIGX)
When pairing growth funds with index funds, it’s important to watch out for overlap, Smallwood says. Otherwise, you could end up reducing diversification while increasing risk. Choosing a fund that offers both capital appreciation and dividends can be a good way to mix things up. VDIGX invests in companies that have growth potential but may be undervalued by the market, which might appeal to your buy-and-hold needs. The fund diversifies across different sectors, with companies like UnitedHealth Group (UNH), McDonald’s Corp. (MCD) and Johnson & Johnson (JNJ) representing top holdings. The dividend yield is 1.85%, while the trailing 10-year return is 13.15%. Like other Vanguard funds, VDIGX has a low expense ratio, at 0.27%.
Fidelity Growth Discovery Fund (FDSVX)
Alongside Vanguard growth funds, Fidelity’s growth funds are also worth a look. Steve Azoury, financial advisor and owner of Azoury Financial in Troy, Michigan, favors the Fidelity Advisor Technology Fund (FADTX) and Fidelity Advisor Growth Opportunities Fund (FAGAX). While both are some of the best growth mutual funds based on performance, they come with expense ratios of more than 1%. The Fidelity Growth Discovery Fund is a less expensive alternative, with an expense ratio of 0.77%. This fund seeks capital appreciation through investments in domestic and international stocks with above-average growth potential. Holdings include Nvidia Corp. (NVDA), Alphabet (GOOGL) and Adobe (ADBE). FDSVX has a 10-year trailing return of 17.56% and earned an average risk rating from Morningstar.
JPMorgan U.S. Momentum Factor ETF (JMOM)
Investing in large-cap growth funds to buy and hold often means buying what’s hot or trending, Smallwood says. For instance, tech and health care companies are helping to even out some of the stock market volatility triggered by the pandemic. Smallwood likes the JPMorgan Large Cap Growth Fund (SEEGX) for buy-and-hold investing, but if you’re looking for a lower-cost ETF to cash in on market trends, JMOM could be a good fit. This fund aims to track the investment returns of the JP Morgan US Momentum Factor Index, which is composed of U.S. companies that show signs of positive momentum. The JPMorgan U.S. Momentum Factor ETF has a low expense ratio of 0.12%.
iShares Morningstar Large-Cap Growth ETF (JKE)
The JKE fund tracks the Morningstar Large Growth Index, which focuses on large-cap U.S. companies. Like other large-cap growth funds, it includes some of the most recognizable growth stocks — such as Microsoft and Facebook — alongside Visa (V) and PayPal (PYPL). While the bulk of holdings come from the tech sector, JKE also leans heavily on the communication, consumer discretionary and health care sectors. In terms of performance, this growth ETF has a solid track record, posting a 10-year trailing return of 17.31%. Despite ongoing market volatility, the fund is up by more than 22% year to date through early August. It’s also an affordable buy when looking for the best growth mutual funds, with a 0.25% expense ratio.
Invesco QQQ Trust (QQQ)
While many growth index funds use the S&P 500 as their benchmark, Invesco QQQ Trust (formerly known as PowerShares QQQ) follows the Nasdaq-100 Index instead. This index includes around 100 of the most innovative companies in the U.S., including Microsoft, Alphabet, Intel Corp. (INTC) and Tesla (TSLA). It’s a solid ETF option if you want to invest in companies with strong growth potential while focusing on a narrower section of the market. QQQ has a low expense ratio of 0.2%, which is good if you’re hoping to minimize fees over the long term. Looking at the fund’s performance, it boasts the best 10-year trailing return of any of the growth fund options included here, at 20.45%.
SPDR S&P 400 Mid Cap Growth ETF (MDYG)
When you choose growth mutual funds, it’s important to avoid tunnel vision. “There are hundreds of places to invest, and it’s always a challenge as to where to put your investment dollars,” Azoury says. While large-caps may immediately catch your eye, don’t overlook mid-cap growth funds like MDYG. The ETF tracks the return performance of the S&P MidCap 400 Growth Index. It’s a nondiversified fund that includes companies such as Etsy (ETSY), Fair Isaac Corp. (FICO) and Teradyne (TER). Investing in mid-caps could make sense for buy-and-hold investing when you have a longer timeline to allow for growth. MDYG’s 10-year trailing return is 12.36%, while its expense ratio is 0.15%.
Seven of the best growth funds to buy and hold:
— Vanguard Growth Index Fund Admiral Shares (VIGAX)
— Vanguard Dividend Growth Fund (VDIGX)
— Fidelity Growth Discovery Fund (FDSVX)
— JPMorgan U.S. Momentum Factor ETF (JMOM)
— iShares Morningstar Large-Cap Growth ETF (JKE)
— Invesco QQQ Trust (QQQ)
— SPDR S&P 400 Mid Cap Growth ETF (MDYG)
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