Key Points

• Growth stocks can help your portfolio grow faster -- but can be more volatile.

• Here are a handful of great growers that aren't insanely overvalued.

• Even more convenient: consider this growth ETF instead.

• 10 stocks we like better than iShares Trust - iShares U.s. Technology ETF ›

Most of us would love to have portfolios featuring some great growth stocks, right? Why have your portfolio growing at an average pace when it might grow at an above-average rate? That may seem obviously true, but there are some downsides to growth stocks, too.

Here's a look at some very promising growth stocks, including one that's exceptionally tempting, along with a few caveats to consider.

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Nvidia

The semiconductor titan Nvidia (NASDAQ: NVDA) recently became the first company to reach a market capitalization of $4 trillion. It got there by averaging annual gains of 78% over the past decade -- and by becoming a key producer of data center chips that are increasingly necessary in this age of artificial intelligence (AI) everything.

Better still, Nvidia's shares seem to have plenty of room for further growth, with a recent forward-looking price-to-earnings (P/E) ratio of 37.3, below its five-year average of 39.5.

Microsoft

Meanwhile, Microsoft (NASDAQ: MSFT) is another compelling giant, with its recent forward P/E of 33 not far above its five-year average of 30, suggesting it's still reasonably valued. The company has multiple growing businesses, such as its dominant Office 365 suite of applications, its Azure cloud computing platform, its Xbox gaming platform, and its major Windows operating system, among many other things.

Microsoft pays a dividend that may seem small, with a recent yield of 0.67%, but that payout has been growing briskly. The recent total annual payout was $3.24 per share, up from $2.09 in 2020 and $1.59 in 2017. In Microsoft's third quarter, revenue grew by 13% year over year, with net income up 18%.

Alphabet

Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is also tempting to choose as the smartest growth stock. My colleague Keithen Drury recently called it a "once-in-a-decade opportunity." It encompasses not only the Google search engine, but YouTube, the Chrome browser, the Google Cloud Platform, and more. Alphabet's recent forward P/E of 18.8 is well below its five-year average of 22.1.

Meta Platforms

See how many terrific growth stocks are out there that aren't insanely overvalued? Here's another: Meta Platforms (NASDAQ: META), parent of Facebook, Instagram, WhatsApp, and more. On average, 3.4 billion people use at least one of Meta's services daily (up 6% year over year as of March). Meta Platforms' forward P/E, recently 28.5, was well above the five-year average of 21.1, but its PEG ratio (comparing its price to its growth rate) was a very reasonable 0.99, below the five-year average of 1.12.

Here's my smartest growth stock to buy

So which stock am I choosing? Well, I'm going to suggest you check out the iShares US Technology ETF (NYSEMKT: IYW). An exchange-traded fund (ETF) is a fund that trades like a stock, and this one tracks the Russell 1000 Technology RIC 22.5/45 Capped Index, investing at least 80% of its assets in stocks from that index.

If you're thinking that a growth-stock ETF doesn't sound as exciting as an actual growth stock, know that this ETF has averaged annual returns of 19.6% over the past 15 years and 27.9% over the past three years. It's not a sleeper.

The fund recently encompassed 142 stocks, and its top 10 holdings made up 64% of its total value. Those top 10 stocks include all of the ones I mentioned earlier, and nearly 90% of the ETF's value is invested in technology stocks.

So take a closer look at this ETF if you're now intrigued. Buying into it will quickly make you a part owner of 142-some companies, with much of your invested dollars in the stocks mentioned above.

A few caveats to consider

As you think things through, though, remember that growth stocks are exciting, but they can also be volatile. If for any reason you fear our economy may be in for some bumps soon, perhaps due to tariff wars, know that growth stocks tend to fall harder during market downturns.

Think, too, about your holding period. No money that you'll need within around five years (if not 10, to be more conservative) should be in stocks, because market corrections do happen now and then. If you're interested in investing in any of these growth stocks or this ETF for just, say, a year, think twice. If you're a long-term investor, aiming to hold for many years and even a decade or more, you'll likely be able to ride out a market downturn or a slow period for any particular growth stock.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Selena Maranjian has positions in Alphabet, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Microsoft, and Nvidia. 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.

Are you looking to build a worry-free, passive long-term portfolio that will allow you to focus on other things while growing your money? Buying and holding a handful of exchange-traded funds (or ETFs) is the answer, of course, and the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) remains a top choice.

If you're truly looking for lifetime holdings though, you may want to consider a slightly different solution that allows you to adjust your overall allocation as time marches on. Namely, you'll want to buy a handful of different (but complementary) ETFs that can be individually scaled back or added to as your risk tolerances change.

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If you have $1,000 in cash available to invest that isn't needed for monthly bills, to pay off short-term debt, or to bolster an emergency fund, here's a combination of ETFs to consider that will likely set most investors up for a lifetime of strong performance.

Vanguard Growth ETF

If this really is going to be a "forever" portfolio, it's a reasonably safe bet that growth is a priority for most of the time frame in question. The Vanguard Growth ETF (NYSEMKT: VUG) will handle this part of the overall job nicely.

Just as the name suggests, the Vanguard Growth ETF holds a basket of growth stocks. The fund currently holds significant stakes in Apple, Microsoft, and Nvidia ... some of the market's top-performing growth names of late. Although this company weighting evolves over time as some companies' market caps outgrow others, this ETF gives you a great shot at major long-term capital gains.

Data by YCharts.

There's a very particular reason, however, you might want to own the Vanguard Growth ETF instead of seemingly similar alternatives like the Invesco QQQ Trust, which holds many of the same stocks. That's the fact that this fund is meant to mirror the CRSP U.S. Large Cap Growth Index. (CRSP stands for the Center for Research in Security Prices.)

That won't mean much to most people. This might get your attention though: The CRSP Large Cap Growth Index largely sidesteps the common problem of taking on too much exposure to the market's very biggest companies, which in turn leaves investors vulnerable to sizable setbacks once the tide finally turns against these top names.

That hardly makes it an "equal weight" index, to be clear -- it's still measurably top-heavy.

The fund is top-heavy to a degree that's tolerable and even a little desirable, however, by virtue of ensuring a little bit of overexposure to companies that are becoming much bigger due to actual top- and bottom-line growth.

Schwab U.S. Dividend Equity ETF

Growth stocks aren't the only way for your portfolio to achieve net growth, of course. It can also be done by a slow and steady (and ever-rising) flow of fresh cash into the account, which is then used to purchase more of whatever's generating that income. For some investors, that will be bonds and other fixed-income instruments. For most people though, this income will come from dividend-paying stocks.

The irony? High-quality dividend-paying stocks often end up outgaining the broad market anyway.

Mutual fund company Hartford crunched the numbers, determining that since 1973, stocks of companies that were able and willing to consistently grow their dividend payments produced average annual net gains of more than 10% (assuming reinvestment of those dividends) while stocks that didn't dish out any dividends didn't perform half as well. Moreover, reliable dividend payers were the market's least volatile stocks during this stretch, making them easier to stick with during turbulent times.

Data by YCharts.

What gives? The best explanation is the argument that quality always eventually shines through, and a reliably growing dividend is a good sign that a company is solid and well-run. Although there's certainly the occasional exception to this norm -- think non-dividend-paying Nvidia -- identifying these exceptions isn't always easy. You should invest based on your best odds, particularly when you're thinking in terms of a lifetime.

The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is arguably the best way to plug into this dividend-driven dynamic. Based on the Dow Jones U.S. Dividend 100™ Index, this ETF doesn't simply hold what appear to be the market's most promising dividend stocks. In addition to requiring at least 10 consecutive years of annual dividend increases, inclusion in this index also considers fundamental factors like free cash flow versus debt, return on equity, and its typical dividend growth rate. Each prospective constituent is then ranked on these metrics to screen out all tickers other than the best 100 names.

While this approach seems quite mechanical, that's the reason it works so well. There's no misleading emotion, presumption, or bias built into the selection and rebalancing process.

iShares U.S. Technology ETF

Finally, add the iShares U.S. Technology ETF (NYSEMKT: IYW) to your list of ETFs to buy and hold for a lifetime if you've got $1,000 -- or any other amount of money -- you'd like to put to work for a while.

It's obviously different than either of the other two exchange-traded funds suggested here, both of which represent a unique investing school of thought. A sector-based fund is more strategically precise, calling into question whether or not it's actually capable of being a true lifetime holding. And maybe it isn't. It would be shocking, however, if the technology sector wasn't a great one to plan on holding for the long haul, even if you can't fully see its future.

Data by YCharts.

Think about it. Ever since personal computers began proliferating back in the late 1990s, the world has increasingly become digitized. Automobiles have them on board, and people would struggle to function without the mini mobile computer they now carry around in their pocket or purse. Artificial intelligence is now being used by the pharmaceutical industry to discover, design, and digitally test new drugs. Factories are made more efficient by being able to instantly share and create actionable data. At the heart of all of it is technology, and now that we've seen what it can do, we're certainly not going back to the "old way" that was less efficient and less effective. Now, one of the world's most commonly asked questions is: How can we use technology to make things even better?

There's more than one exchange-traded fund that would fit this bill, but the iShares U.S. Technology ETF is arguably the best all-around prospect thanks to how it weights its holdings.

Built to mirror the performance of the Russell 1000 Technology RIC 22.5/45 Capped Index, this fund -- like the aforementioned Vanguard Growth ETF -- at least attempts to maintain a reasonably balanced allocation even when the market itself is becoming top-heavy thanks to the ongoing growth of a small handful of massive companies. As Russell explains in a factsheet on the index, "At the quarterly index reviews, all companies that have a weight greater than 4.5% in aggregate are no more than 45% of the index, and no individual company in the index has a weight greater than 22.5% of the index."

This approach doesn't always perfectly accomplish its goal. Right now, for instance, Microsoft, Nvidia, and Apple collectively account for about 45% of the index's value. That's not particularly well balanced.

The weighting rules will help more often than not in the long run though, and will certainly help more often than they hurt.

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*Stock Advisor returns as of May 12, 2025

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Vanguard Index Funds - Vanguard Growth 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.