VUG - Vanguard [Growth ETF]

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Punta Cana DR
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VUG - Vanguard [Growth ETF]

Post by Punta Cana DR » Sat Dec 10, 2016 2:01 pm

All,

I enjoy this board...so much information and inspiration. I have a taxable account and looking for low ER, low tax, growth fund. Has anyone thoughts on VUG?

Thanks for any advice.

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nisiprius
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Re: VUG - Vanguard [Growth ETF]

Post by nisiprius » Sat Dec 10, 2016 4:48 pm

Caution: the word "growth" (and "value") are used in two overlapping, but very different ways.

When people talk about "growth stocks" or "a growth fund," very often they mean a traditional, not indexed, not passive, stock-picking approach that involves stocks of companies that are hoped to grow rapidly; perhaps they are young, perhaps they are pioneers in a new technology. When used in this way, "growth" is the opposite of "income." Usually, "growth" stocks don't pay dividends because they are in a stage of their life where it is thought that money will grow faster if kept in the business than it would elsewhere.

So, that's one meaning, and VUG doesn't really fit. VUG is an index ETF, and it "Seeks to track the performance of the CRSP US Large Cap Growth Index."

This meaning of the word "growth" traces back to Fama and French and the effort to identify characteristic "factors" that explain differences between different stocks. "Growth" in this sense means "high price-to-book ratio." VUG tracks an index of 320 stocks that have a high "loading" on the "growth factor." In this sense the opposite of "growth" is "value."

So the question is: were you already clear on this? What do you expect from VUG? If you mean "I've decided that I want my portfolio to be overweighted in the 'large growth' square of the Morningstar style box," If the latter, then VUG is a good tool for that job--but I wonder what your reasons are for wanting that. Just for the record, most of the people who go in for factor-based strategies seem to think that they want to tilt exactly the other way, toward value rather than growth.

On the other hand, if you just mean "a fund that will grow fast," that's not what this fund promises to do.

Here is a growth-of-$10,000 chart comparing VUG (orange) to the Vanguard Total Stock Market Index Fund (blue), which tries to hold the whole market without any bias or tilt toward particularly kinds of stocks, and, as you can see, at some times VUG grew faster than Total Stock and at some times it grew slower, but since inception of VUG, overall VUG didn't actually "grow" any more than Total Stock. In fact it grew very slightly less.

Source

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veerain
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Re: VUG - Vanguard [Growth ETF]

Post by veerain » Sat Dec 10, 2016 5:33 pm

I like VUG...I use it in my taxable account -and its counter part VTV in tax deferred account. This allows me to reduce my overall taxable dividend income. I use VUG/VTV only because I did not find any alternative way to slice the market with "no-dividend" "dividend" axis.

camaro327
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Re: VUG - Vanguard [Growth ETF]

Post by camaro327 » Sun Dec 11, 2016 6:02 am

I think this is perfectly logical as long as you continue to add to both ETFs in roughly equal amounts. In other words, not try to market time the growth or value portions of the large cap index.

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grabiner
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Re: VUG - Vanguard [Growth ETF]

Post by grabiner » Sun Dec 11, 2016 10:45 am

VUG (Growth Index) is one of the most tax-efficient low-cost funds available; it has a low dividend yield, and the dividends are all qualified. Thus, if you are balancing out a value bias in the rest of your portfolio (for example, you like the value fund offered in your 401(k)), Growth Index in a taxable account makes sense.

However, the broader-market large cap funds such as Total Stock Market Index and 500 Index are less expensive. Thus, it's probably not worth holding Growth Index in your taxable account and Value Index in your IRA; you'll lose as much to extra expenses as you save in taxes.

Another choice for the same purpose is Vanguard Tax-Managed Capital Appreciation, which tracks the Russell 1000 but selects stocks for lower dividend yields. It has only a slight growth bias, but is also extremely tax-efficient. Again, the extra expenses are not likely to be worth it unless you are in a very high tax bracket.
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Punta Cana DR
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Re: VUG - Vanguard [Growth ETF]

Post by Punta Cana DR » Sun Dec 11, 2016 11:21 am

Thanks for all the replies. Much appreciated!

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