So far, 2025 has been a very volatile year for the stock market. The S&P 500 index fell into a correction early in the year and then quickly climbed out of that drawdown. While the recovery was nice to see, it also means that the S&P 500 index is back near its all-time highs. Is the S&P 500-tracking Vanguard 500 Index ETF (VOO 0.16%) the smartest investment you can make today?
What does the Vanguard 500 Index ETF do?
The Vanguard 500 Index ETF is an exchange-traded fund (ETF). Much like a mutual fund, it allows many investors to pool their assets so they can hire a professional money manager to invest for them. The biggest difference is that mutual funds can only be bought and sold at the end of each trading day, while ETFs can be bought and sold all day long, just like a stock.
Image source: Getty Images.
As the Vanguard 500 Index ETF's name hints, it is an index fund that tracks the S&P 500. This index is the generally accepted benchmark for U.S. stocks. However, the index is really meant to track the U.S. economy. The 500 or so stocks in the index are selected by a committee, not for investment merit, but based on how well the overall collection of stocks represents the economy. The mix shifts and adjusts over time. The index is market-cap weighted, meaning the largest companies have the biggest effect on performance, just like in the broader economy.
As for costs, the Vanguard 500 Index ETF has an ultra-low expense ratio of 0.03%. That is roughly one-third the cost of the first-ever S&P 500 index-tracking ETF, the SPDR S&P 500 ETF. Since the Vanguard 500 Index ETF and SPDR S&P 500 ETF do the exact same thing, that cost advantage makes the Vanguard 500 Index ETF the smarter choice.
Is now the time to buy the Vanguard 500 Index ETF?
There are clearly better and worse times to invest in the S&P 500 index. Right now, with the market near all-time highs, is probably a worse time. There's a good chance that buying today will mean sitting on some near-term capital losses in the not-too-distant future. But that doesn't necessarily mean you shouldn't buy the Vanguard 500 Index ETF if you have some cash to put to work today.
Notice the 2020 recession and bear market in the above chart. At the time, there was a massive amount of uncertainty because of the coronavirus pandemic. Yet, just five years or so later, the market has not only recovered all the ground it lost, but has moved notably higher. That drop just looks like a random bit of noise. Even if you'd bought the Vanguard 500 Index ETF right before that deep price decline, you would have made out OK.
Stitching the view to the SPDR S&P 500 ETF because it has been around for longer allows an even greater appreciation of the S&P 500 index's historical growth. As the chart below shows, the recession and bear market after the turn of the century and deep downturn during the Great Recession also look like mere blips in 2025.
This is the big point here. Buying the market has worked out well over time, even if you timed the purchase (shockingly) poorly. The key is to stay invested for the long term. Even better would be to reinvest your dividends so you can compound your returns. And even better still would be continuing to add cash at regular intervals to benefit from dollar-cost averaging. The big-picture goal is to start investing and keep investing for as long as possible. If you do that, history suggests you'll end up just fine.
The Vanguard 500 Index ETF is a great choice
For some investors, the fun in all of this is picking individual stocks. But there are far more investors who don't want to do that because it is time-consuming and difficult. For investors who want to keep their investing lives simple, the Vanguard 500 Index ETF is a wonderful choice. That's as true today as it was just before the pandemic, the Great Recession, and the dot.com crash. Focus on the long term and just get started!
