anticipation: The Top Two Vanguard Index Funds of 2024 are Likely to Outperform the S&P 500 in 2025 once more
John Bogle, the founder of Vanguard, was an avid proponent of passive investing. Under his leadership, Vanguard introduced the first index fund for individual investors in 1976, and the company has since become a leading force in the global asset management industry, renowned for offering a multitude of affordable investment options.
In 2024, two Vanguard index funds showed exceptional returns, outperforming the S&P 500's gain that year. These funds were:
- Vanguard S&P 500 Growth ETF (VOOG), which saw a 35% increase.
- Vanguard Russell 1000 Growth ETF (VONG), which advanced by 32%.
Both of these growth-focused funds beat the S&P 500's 23% growth in 2024, and they are quite likely to outperform the market again in 2025 as artificial intelligence spending increases.
Vanguard S&P 500 Growth ETF: A Stellar 35% Return in 2024
The S&P 500 Growth index measures the performance of companies within the S&P 500 that demonstrate growth potential based on revenue, earnings, and momentum. The Vanguard S&P 500 Growth ETF mirrors this index, featuring 234 stocks, with the technology, consumer discretionary, and communications services sectors accounting for the largest portion of its holdings (49%, 15%, and 12% respectively). The five top holdings are:
- Apple: 12.3%
- Nvidia: 11.6%
- Microsoft: 10.8%
- Amazon: 6.6%
- Alphabet: 6.2%
The Vanguard S&P 500 Growth ETF was a shining investment over the past decade, seeing a stunning 310% return, which equates to an annualized return of 15.1%. In comparison, the broader S&P 500 managed a 242% return, or a yearly return of 13.1%.
Grand View Research predicts that spending on artificial intelligence (AI) in hardware, software, and services will grow at a 36% annual rate through 2030. This anticipated rise in AI spending should continue to drive the technology sector's performance, making the Vanguard S&P 500 Growth ETF a strong candidate for market-beating returns in 2025 and beyond.
It's worth noting that this ETF garners an expense ratio of only 0.1%, translating to an annual expense of $10 for every $10,000 invested in the fund. This is far below the typical expense ratio of 0.95% for comparable funds, according to Vanguard.
Vanguard Russell 1000 Growth ETF: 32% Return in 2024
The Russell 1000 growth index measures the performance of companies within the Russell 1000 that demonstrate growth potential based on revenue and earnings. While the S&P 500 and Russell 1000 both track large-cap U.S. equities, the Russell 1000 includes the top 1,000 companies, with the technology and consumer discretionary sectors composing the largest portion of its holdings (59% and 19% respectively). The five top holdings are:
- Apple: 11.8%
- Nvidia: 11.1%
- Microsoft: 10.7%
- Amazon: 6.6%
- Alphabet: 6.2%
In the last decade, the Vanguard Russell 1000 Growth ETF outperformed the Vanguard S&P 500 Growth ETF due to its even heavier exposure to the technology sector. In the past ten years, this index fund has delivered a solid 367% return, with an annual compounded growth rate of 16.6%.
Based on the expected growth in AI spending during 2025 and beyond, the Vanguard Russell 1000 Growth ETF is expected to continue outperforming the market, much like it did in the previous decade.
The Vanguard Russell 1000 Growth ETF comes with an expense ratio of 0.08%, equating to an annual expense of $8 for every $10,000 invested in the fund. This is slightly less than the Vanguard S&P 500 Growth ETF, making it an attractive choice for investors seeking lower costs.
- John Bogle's advocacy for passive investing, as the founder of Vanguard, led to the creation of the first index fund for individual investors in 1976, focusing on finance and investing.
- In 2024, two Vanguard index funds, specifically the Vanguard S&P 500 Growth ETF and Vanguard Russell 1000 Growth ETF, demonstrated exceptional returns, outperforming the S&P 500's gain that year.
- These growth-focused funds, Vanguard S&P 500 Growth ETF and Vanguard Russell 1000 Growth ETF, mirrored the S&P 500 Growth and Russell 1000 Growth indexes, respectively, which are primarily influenced by the performance of specific sectors, such as technology and consumer discretionary.
- Bogle's approach to indexing and low-cost investing, as exemplified by Vanguard funds like VOOG and VONG, has allowed them to consistently deliver above-average returns while keeping expense ratios significantly lower than other comparable funds in the market.
