Jack Bogle, known as the father of index investing, founded Vanguard in 1975 to introduce low-cost investment products to the masses. He succeeded with this mission. With $11.9 trillion in assets under management (as of Oct. 31), the firm offers numerous exchange-traded funds (ETFs) these days.
This gives investors plenty of choices when deciding where to park their hard-earned savings. One of these investment vehicles stands out, though. Here's what I believe is the best Vanguard ETF to invest $1,000 in right now.
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Owning the S&P 500 is a smart move
The S&P 500 (^GSPC 1.22%) is the most closely watched stock market benchmark. It contains 500 or so large and profitable businesses listed on stock exchanges in the U.S., representing about 80% of domestic market capitalization.
To invest behind this, you should consider the Vanguard S&P 500 ETF (VOO 1.15%). It has $1.5 trillion in assets, making it an extremely popular option for investors.
This ETF tracks the performance of the S&P 500, matching its composition. It gives investors exposure to every sector, from information technology and financials to consumer discretionary and energy. Investors are basically betting on the ongoing ingenuity, inventiveness, and success of the American economy. Historically, it's been a very smart idea to adopt this perspective.
While there are hundreds of companies in this ETF, investors must understand that there is greater exposure to the largest businesses. It's no surprise that with technology enterprises dominating in recent times, the Vanguard S&P 500 ETF has high concentration to names like Nvidia, Apple, and Microsoft, for instance, which combined make up 21% of the portfolio.
The beauty of owning this ETF is that it gives investors a hassle-free method to allocate capital to the stock market. You don't need a degree in finance, expert analytical skills, or hours of free time each week to conduct research. This makes it an extremely compelling choice for passive investors.
It's hard not to get excited when looking at the last decade's performance
The Vanguard S&P 500 ETF's performance is probably the single most important data point investors are interested in. In the past decade, it has produced a total return of 300% (as of Dec. 29). A hypothetical $1,000 investment made in late December 2015 would be worth $4,000 today. No one should have any complaints about this kind of result.
Even better, the costs are extremely low. The ETF carries an expense ratio of just 0.03%. Only $0.30 of that $1,000 gets paid to Vanguard.
It's impossible to overstate how valuable low fees are in the investment management industry. There are so many active fund managers who charge their clients exorbitant fees, but they still fail to outperform the S&P 500 over long time horizons. With the Vanguard S&P 500 ETF, investors can match the index's performance without losing an arm and a leg.
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Key Data Points
Think about the long term
It would be wonderful if this ETF generated a similar gain over the next 10 years. However, the truth is that no one has any idea what the future will hold.
On the one hand, the bears will point to the S&P 500's current CAPE ratio of 40.7, a historically high level. An elevated starting valuation typically doesn't bode well for returns going forward.
On the other hand, it's easy to remain optimistic. The valuations of some of the most dominant companies aren't too stretched when compared to their earnings. Fiscal and monetary policy have been accommodating to asset prices. And capital has flooded the market from passive investors, adding more buying power. I believe these factors hold more weight.
These are the variables to keep in mind, although investors would be better served not wasting time trying to predict what will happen. Instead, it's critical to maintain a long-term mindset, thinking about the next decade and beyond and not the next few months. With that perspective, it makes sense that the Vanguard S&P 500 ETF is a top choice to invest $1,000 in right now.
