Is the Vanguard 500 Index Fund ETF a Buy Now?

Looking for an investment to add to your long-term portfolio? Consider the Vanguard S&P 500 ETF (VOO +0.95%), which tracks the S&P 500. It's a smart buy for most investors at most times. Even Warren Buffett has recommended it, directing that most of the money he leaves his wife be put into an S&P 500 index fund.

Here's a closer look at the fund and what's in it. See what you think and whether it might be a good fit for you.

Image source: Getty Images.

Meet the S&P 500

Let's start with the S&P 500, which is the index tracked by this index fund. The S&P 500 is a grouping of 500 of the biggest companies in the U.S. Here are its recent top 10 components, by weight, as of early June:

Source: Slickcharts.com. ETF = exchange-traded fund.

Note that if you combine the two Alphabet classes, the total weighting is 3.82%, which would put it in fifth place in the ranking. You might also note that all seven of the "Magnificent Seven" stocks -- Apple, Microsoft, Google parent Alphabet, Amazon, Nvidia, Facebook parent Meta Platforms, and Tesla -- are held in the index in rather great proportion. Indeed, together, the top 10 holdings in the S&P 500 make up about a third of the entire index's value.

The S&P 500, like many stock indexes, is a market-capitalization-weighted index, meaning the biggest companies in it will have the most influence on it. That's evident just from the table above, which shows how much more influence Nvidia has than Tesla, and Tesla is the seventh-most influential component.

Remember, too, that there are 490 other stocks in the index, though most of them have relatively little influence on its movement individually. Other components include Costco Wholesale (recently ranked 18th), Starbucks (103), PayPal Holdings (150), Delta Air Lines (277), Ulta Beauty (357), and MGM Resorts International (485).

All together, these 500 companies comprise about 80% of the total value of the U.S. stock market. That's why the S&P 500 is often used as a proxy for the total U.S. stock market -- although doing so does omit thousands of smaller companies.

Why invest in an S&P 500 index fund?

So, why would you invest in a low-fee S&P 500 index fund, such as the Vanguard S&P 500 ETF? Here are some reasons.

For starters, it's a solid performer. The S&P 500 has averaged annual gains of close to 10% over long periods -- a rather powerful growth rate. Here's how your money might grow at that rate over time and at a slightly more conservative rate (because that 10% is not guaranteed):

Source: Calculations by author.

See? If you're diligent and stick with the program, you might amass a million dollars or more investing with just a simple index fund. On top of that, the S&P 500 index has outperformed a whopping 90% of managed large-cap mutual funds over the past 15 years. It's not easy to outperform an S&P 500 index fund.

One reason the S&P 500 index performs so well is that it's not comprised of the same 500 stocks for years and years. It gets adjusted over time. Now and then, some stocks are ejected from the index, and others are added. The ejected ones have likely been struggling or, at the very least, haven't been growing briskly, while the new components have grown enough to merit consideration for the index.

There are more reasons to love S&P 500 index funds: They give you instant diversification, spreading your dollars across technology companies (specializing in cloud computing, semiconductors, cybersecurity, and more), financial services companies, healthcare companies, consumer products companies, energy companies, retailers, and much more. You'll essentially be invested in the American economy.

Consider the Vanguard S&P 500 ETF

So, consider the Vanguard S&P 500 ETF. It's an exchange-traded fund (ETF) -- which is like a mutual fund but trades like a stock, allowing you to buy one or many shares through your brokerage account. It's a smart buy at just about any time, and many people will be best served by simply adding money to it over many years.

Vanguard is known for charging low fees, and this ETF sports an expense ratio (annual fee) of just 0.03%, meaning you'll be charged $0.30 annually for every $1,000 you have invested in the fund. Here's how the ETF has performed on an annualized basis over some recent periods:

Source: Data from Vanguard.com as of May 31, 2025. ETF = exchange-traded fund.

So, give the Vanguard S&P 500 ETF some serious consideration for a berth in your long-term portfolio. (Remember that short-term money that you may need within five or so years is best kept out of stocks.)