When you think of investing, you might immediately think of buying individual stocks. If you choose quality companies and hold on for the long term, that's a fantastic way to grow wealth. But you don't have to stop there. Here's a complementary strategy you can use to boost your portfolio: Investing in a fund that tracks the companies driving today's economy. The Vanguard S&P 500 ETF (VOO 0.87%), which replicates the performance of the S&P 500, is one of these funds.
Investors in this fund may have felt like they were on a roller coaster at certain points this year. After two years of gains, the S&P 500 started the year off on the right foot -- but then tumbled amid concerns about President Donald Trump's plan to set tariffs on imports. The index didn't remain in the doldrums for long, though. Signs of moderation regarding those tariffs, speculation about potential interest rate cuts, and strong earnings from some of the market's biggest companies fueled optimism. The index went on to recover and even post gains.
In fact, the S&P 500 has reached record highs in recent times and is heading for a 10% increase so far this year. Does this mean savvy investors should be watching the Vanguard S&P 500 ETF in 2025? Let's find out.
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Instant diversification
Before answering that question, let's talk a bit more about exchange-traded funds, or ETFs. They allow you to invest in a theme -- such as companies in a particular index or industry -- and gain exposure to a number of stocks with just one purchase. This offers you instant diversification, something that could minimize risk. If one stock or industry faces tough times, others within the ETF may compensate.
You can purchase shares of an ETF as you would a stock. They trade daily on the market, making ETF investing an easy addition to your investing routine. ETFs do come with fees, and you'll see this expressed as an expense ratio. Be sure to invest in those with an expense ratio of less than 1%, so that fees don't chip away at your profits.
Now that we've covered some of the ETF basics, let's consider whether the Vanguard S&P 500 ETF is one to watch today. (The fund has an expense ratio of 0.03%, suiting our investment criteria.)
It's impossible to predict what its index of reference, the S&P 500, will do in the short term, but we do know this benchmark has a fantastic long-term track record. Since its launch in the late 1950s as a 500-company index, it's delivered an average annual return of 10%. This means that if you had bet on an ETF tracking it over a number of years, you would have been very likely to score a win.
Companies driving the economy
As always, the S&P 500 includes the most significant companies driving the economy. I say "as always" because the index adds and subtracts members quarterly to ensure that its members are truly relevant. This means that at any point in time, if you invest in the Vanguard ETF that tracks it, you'll be investing in the key movers of the moment. The great thing is that all of this is automatic. You don't have to worry about buying and selling shares of particular players or researching the latest trends.
As for what may happen next, in 2025, it's likely that the Vanguard S&P 500 ETF will see more movement in the months to come. Catalysts on the horizon include interest rate decisions from the Federal Reserve, U.S. decisions on tariffs, and, of course, the next set of earnings reports later on in the year.
All this means that, yes, savvy investors should be watching the Vanguard S&P 500 ETF in 2025. Any dip makes a great buying opportunity. That's because, regardless of what the ETF does this year, history shows us that the index and funds that track it have a solid record of delivering investors a win over time.
