Vanguard is a highly regarded company within the investment management industry. It's been around for five decades. It has trillions of dollars in assets under management. And it has been a leader in pioneering low-cost investment products, democratizing access to the stock market for more people.
One of its most well-known offerings is the Vanguard S&P 500 ETF (VOO +0.02%). It's been around since 2010, and it currently has $1.5 trillion invested in it. Is this exchange-traded fund (ETF) a smart buying opportunity right now?
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What will investors really own?
It's of the utmost importance that investors first understand what they're potentially looking to buy and own. With an ETF, this is critical because they're not all created equal. As its name suggests, the Vanguard S&P 500 ETF gives investors exposure to the S&P 500. This closely watched benchmark contains 500 or so large and profitable businesses that trade on U.S. stock exchanges. It represents about 80% of total market capitalization in this country.
By buying this ETF, investors immediately have access to the greatest economy on Earth, with its proven ingenuity and inventiveness that has led to durable economic growth. All sectors are represented, even Materials and Real Estate, which have tiny weights.
It might come as no surprise that the Information Technology sector, at 34.6%, had the largest representation in the Vanguard S&P 500 ETF. The rise of well-known enterprises in these related markets, like Nvidia, Apple, and Microsoft, has supported higher share prices over time. Powerful secular trends, including artificial intelligence (AI), cloud computing, and digital advertising, have been key growth tailwinds.
One of the most obvious advantages investors gain by owning the Vanguard S&P 500 ETF is that they don't have to pick single stocks that could be the next big winners. This is especially difficult to do these days since new technology rapidly alters the economy. Plus, time not spent conducting research can be allocated to other activities.
Performance and fees are top of mind for investors
It's hard to argue with the Vanguard S&P 500 ETF's track record at compounding capital. In the past decade, this ETF has generated a total return of 322% (as of Jan. 8). A hypothetical $10,000 investment made in early January 2016 would be worth more than $42,000 today. That translates to a superb 15.4% compound annual return.
Even better, had you adopted a dollar-cost averaging strategy, investing an additional $100 in the ETF every month, that total figure would balloon to almost $70,000. Investing is most successful when it's done early and often. Investors should keep this in mind next time they try to time the market.
The low expense ratio of 0.03% might be a more compelling attribute. Viewed in conjunction with the Vanguard S&P 500 ETF's performance, this looks like a no-brainer investment opportunity. That's because the vast majority of active fund managers lose to the market over the long run, yet that doesn't prevent them from charging exorbitant fees.
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Key Data Points
All it takes is patience
As of this writing on Jan. 8, the Vanguard S&P 500 ETF basically trades at its all-time high. Investors who are overly concerned about waiting for the dip before buying have a good point, especially since there are worries that the stock market is in an AI bubble. What's more, the market's valuation is extremely high from a historical perspective.
It may seem that the smart move is to wait for a sizable pullback before putting money to work. This is not the right approach, in my opinion. The stock market rewards investors who have a long-term time horizon. And it usually punishes those who believe they can trade in and out in an effort to avoid the bad days and capture the good days.
The Vanguard S&P 500 ETF remains one of the best investment options available.
