While this $7 annual difference might seem small, it compounds over time along with your investment returns. However, if the growth fund’s higher returns persist, they could more than offset this modest fee differential. Both funds rank among the most cost-efficient in their categories, with industry averages running nearly 10 times higher.

The Vanguard S&P 500 Growth ETF’s concentrated exposure does come with increased volatility. The fund’s beta of 1.11 means it tends to amplify market movements significantly — when the broader market rises 10%, this fund historically rises about 11.1%, but it also falls more sharply during downturns. For long-term Roth IRA investors, this heightened short-term volatility may be worth accepting in exchange for greater growth potential.

Both funds share significant overlap in their top holdings, meaning they often move in similar directions. The key difference lies in the growth fund’s more concentrated exposure to companies demonstrating stronger growth characteristics. Speaking to this point, the Vanguard S&P 500 Growth ETF has markedly outperformed the Vanguard S&P 500 ETF since inception:

A Roth IRA’s tax advantages make it particularly well suited for aggressive growth investments. Since withdrawals in retirement are tax-free, capturing higher returns through growth-focused funds can lead to substantially larger after-tax wealth over decades of compounding.

For investors with a long time horizon and tolerance for volatility, the Vanguard S&P 500 Growth ETF offers an attractive vehicle for maximizing the benefits of tax-free growth in a Roth IRA. It may experience sharper declines during market corrections, but its focus on quality growth companies positions it well for long-term wealth creation.

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*Stock Advisor returns as of November 25, 2024

George Budwell has positions in Apple, Microsoft, Nvidia, Vanguard Admiral Funds-Vanguard S&P 500 Growth ETF, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Vanguard S&P 500 ETF. 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.

Building Long-Term Wealth: Why I Chose This Vanguard Growth Fund for My Roth IRA was originally published by The Motley Fool