In the short term, growth stocks may continue their impressive climb higher or they could see a major correction. But in the long run, volatility doesn’t matter; growth stocks can be smart holdings, no matter what the current environment looks like. So, just ignore the media noise today and take a big picture view of tomorrow’s best funds for long-term growth.
In translation, what you’ll see here is a combination of funds designed specifically for growth, as well as funds that don’t have growth objectives but just happen to have great long-term growth potential.
For good measure, and to give you a range of choices, this list includes funds from multiple diverse categories. Here are 7 of the best funds for long-term growth:
- Invesco QQQ (NASDAQ:QQQ)
- Vanguard Growth ETF (NYSEARCA:VUG)
- iShares Russell Mid-Cap Growth ETF (NYSEARCA:IWP)
- Vanguard Small Cap Growth ETF (NYSEARCA:VBK)
- Vanguard Information Technology (NYSEARCA:VGT)
- Fidelity Contrafund (NASDAQ:FCNTX)
- T. Rowe Price Health Sciences (NASDAQ:PRHSX)
To be more specific about what we mean by best funds for long-term growth, this list includes ETFs and mutual funds that concentrate on growth stocks or sectors of the economy that have potential for outperforming the major market indices over the next decade and beyond. For an idea of their future growth potential, we look back at performance for the past 15 years, which includes two major bear markets (2008 and 2020), plus a near-bear in 2018.
Funds for Long-Term Growth: Invesco QQQ (QQQ)
Expenses: 0.20% or $20 for every $10,000 invested
15-year annualized return: 16.24%
If you’re a growth investor looking for a set-it-and-forget-it fund to hold, Invesco QQQ (NYSEARCA:QQQ) should be on your short list.
Formerly known as Powershares QQQ, the Invesco QQQ ETF tracks the Nasdaq 100 Index, which includes about 100 of the largest stocks in the index. The outsized long-term performance can be attributed to the focused exposure to big tech names like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN).
But QQQ is not a technology fund, although the sector comprises nearly 50% of the fund holdings. Other top sectors that contribute to long-term growth include Communication Services, Consumer Discretionary, and Health Care.
Vanguard Growth ETF (VUG)
15-year annualized return: 12.72%
If you’re looking for a pure dose of US large-cap growth exposure in a low-cost ETF, Vanguard Growth ETF (NYSEARCA:VUG) is one of the best funds to buy in this space.
To provide a diverse mix of US large-cap growth stocks, VUG tracks the CRSP US Large Cap Growth Index, which consists equity holdings that you’d expect, such as AAPL, MSFT, and AMZN, plus a broad range of about 275 more big U.S. growth stocks.
The 15-year annualized return of 12.72% is good enough to outperform 84% of its large-cap growth category peers during that time frame. This performance is an impressive feat, considering it’s a passively-managed fund.
15-year annualized return: 11.31%
If you’re looking for a mid-cap growth ETF with the track record to show for it’s long-term growth potential, iShares Russell Mid-Cap Growth ETF (NYSEARCA:IWP) fits the bill.
For much of the past decade, mid-cap stocks have not generally outperformed their large- and small-cap market segment counterparts. But that doesn’t mean that the next decade and beyond won’t be outstanding for mid-caps. So, when thinking of the best funds for long-term growth, it’s wise to think about potential growth for the future, not necessarily past performance.
With that said, finding a low-cost ETF that tracks the Russell MidCap Growth Index like IWP is a good way to capture the mid-cap segment of the market. This is because shareholders get 356 mid-cap growth stocks like Moderna (NASDAQ:MRNA), KLA Corporation (NASDAQ:KLAC), and Align Technology (NASDAQ:ALGN).
Vanguard Small-Cap Growth ETF (VBK)
15-year annualized return: 11.28%
Investors that want to get their long-term growth from a low-cost small-cap fund are wise to consider Vanguard Small-Cap Growth ETF (NYSEARCA:VBK).
While large-cap growth stocks have received more love from today’s financial media, small-cap growth is where the future growth performers are coming from.
With a rock bottom expense ratio of just 0.07% and a portfolio that tracks an index of 647 small-cap growth stocks, VBK shareholders get a broad cross-section of the small growth market segment.
VBK’s sector exposure is also set up for long-term growth with the greatest bulk of the portfolio allocated to sectors, such as health care and technology, that stand a good chance of remaining market leaders in the years and decades to come.
Vanguard Information Technology ETF (VGT)
15-year annualized return: 15.93%
To top into long-term growth, investors can buy shares of a fund like Vanguard Information Technology ETF (NYSEARCA:VGT), which provides focused exposure to the turbo-charged tech sector.
We live in the Information Age; therefore, investments in information technology can be a smart bet because this sector has potential to lead other market segments in our lifetime. Thus, we have what could be the ultimate long-term growth sector in technology. How better to invest in a sector for the long run than a low-cost tech index fund?
VGT passively tracks an index of 331 technology stocks, which includes the usual companies like AAPL and MSFT but also other big tech names like Nvidia (NASDAQ:NVDA).
Fidelity Contrafund (FCNTX)
15-year annualized return: 12.18%
If you want to buy and hold an actively-managed mutual fund with an outstanding performance history, Fidelity Contrafund (NASDAQ:FCNTX) is a growth fund to consider for your portfolio.
One of the most appealing qualities of FCNTX is that it’s not an aggressive growth fund but rather a fund that holds a blend of growth at a reasonable price, along with a few value names. Either way you slice it, the manager of 30 years, Will Danoff, is looking for long-term growth potential.
With that combination of growth and value objective, FCNTX shareholders get big growth stocks like Facebook (NASDAQ:FB) and Amazon, but also value stocks like Berkshire Hathaway (NYSE:BRK.B).
T. Rowe Price Health Sciences (PRHSX)
15-year annualized return: 16.31%
It’s difficult to imagine a long-term growth strategy without including an outstanding health care sector fund like T. Rowe Price Health Sciences (NASDAQ:PRHSX).
Although fund manager, Ziad Bakri, has only been at the helm of PRHSX for 5 years, he deserves much credit for the incredible 16.31% 15-year annualized return. The 5-year return for PRHSX is 17.00%, which beats 75% of health care sector funds.
To beat a sector that already is a market leader, the PRHSX portfolio holds a smart mix of biotechnology, medical services, medical devices, and pharmaceuticals.
On the date of publication, Kent Thune did not personally hold a position in any of the aforementioned securities, although he holds QQQ, FCNTX, and PRHSX in some client accounts. Under no circumstances does this information represent a recommendation to buy or sell securities.
Kent Thune is a Certified Financial Planner and owner of Atlantic Capital Investments, LLC, an independent, fee-only, registered investment advisory firm located in Hilton Head Island, S.C. He has more than 15 years of experience managing money for clients throughout the United States and has been a financial writer for several years. His financial philosophy is rooted in the idea that “life is not about making money; money is about making a life.”
You can read more of Kent’s musings on mind, money, and mastery of life at his blog, The Financial Philosopher, or follow him on Twitter at @ThinkersQuill.
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