In the three-year period from 2023 to the end of 2025, simply buying and holding an S&P 500 (^GSPC 1.52%) exchange-traded fund (ETF) was the simplest way to punch your ticket to epic stock market returns.
The Vanguard S&P 500 ETF (VOO 1.53%) -- which is the largest S&P 500 ETF, with $1.51 trillion in net assets -- produced a total return (including dividends) of 26.3% in 2023, 25% in 2024, and 17.8% in 2025. These gains are well above the long-term S&P 500 average annual total return of 9% to 10% per year.
The S&P 500 crushed value stocks and outperformed most sectors during that stretch, with the megacap growth stocks adding trillions in market cap and carrying the market to new heights. Nvidia alone added over $4.1 trillion in market cap during that three-year period.
But the opposite is happening in 2026. The flagship Vanguard S&P 500 ETF is currently down 0.2% year to date (YTD) at the time of this writing -- ranking 51 out of 65 Vanguard equity ETFs.
Here's why the Vanguard S&P 500 has gone from one of the investment management firm's top-performing funds to the bottom 22% and whether it's a buy now.
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The S&P 500's performance tells only part of the market's story
The 14 Vanguard equity ETFs that are performing even worse than the Vanguard S&P 500 are growth-focused, large-cap, and sector ETFs, including those in technology, consumer discretionary, communications, and financials.
Meanwhile, mid caps, small caps, value stocks, international stocks, dividend stock ETFs, and value-focused sectors are outperforming the S&P 500. And all of the "Magnificent Seven" stocks -- Nvidia, Alphabet, Apple, Microsoft, Amazon, Meta Platforms, and Tesla -- are down more than the S&P 500 year to date.
Many of the most valuable U.S. companies are dragging the S&P 500. But look outside those high-profile names, and there are plenty of stocks roaring higher.
NYSEMKT: VOO
Key Data Points
Strength in numbers
Since the S&P 500 is market cap-weighted, there's virtually nothing stopping the index from becoming very top-heavy if the largest companies keep outperforming. The divide reached jarring levels last year. In November, I noted that the Magnificent Seven accounted for 35% of the S&P 500, and the top 20 stocks in the index accounted for half of the index.
The S&P 500 had become less representative of the broader market and more of a megacap growth stock index. Which isn't necessarily a bad thing, as tech is far more important to the U.S. economy than a few decades ago, when some of the largest U.S. stocks by market cap were industrials, consumer staples, and energy giants. But it does make the S&P 500 prone to higher volatility if key sectors like tech, communications, consumer discretionary, and financials sell off.
One of the best ways to uncover what's driving the index is to compare the S&P 500's performance to the S&P 500 equal-weight index. The S&P 500 equal-weight index ranks stocks equally, rather than by market cap. So Nvidia gets the same representation as a relatively small S&P 500 component like Clorox.
The S&P 500 equal-weight index is up 5.3% YTD, while the S&P 500 is down slightly. This means if you threw a dart at a board of each S&P 500 component, chances are that stock is up over 5% in barely more than two months -- a fantastic return. Additionally, over 310 S&P 500 components have positive YTD returns at the time of this writing, showcasing that the majority of the market is gaining.
Using ETFs to your advantage
The Vanguard S&P 500 ETF is an extremely low-cost way to get exposure to the largest U.S. companies, but it presents concentration risk and isn't very diversified, given the low impact of most of its holdings. Components outside the top 100 make up 0.2% or less of the S&P 500.
The index is a great buy if you're looking for a simple plug-and-play way to get exposure to megacap stocks. But investors may be better off combining individual stocks with ETFs that better align with their investment objectives and risk tolerance. This is especially true because so many platforms offer commission-free trading, and even $100,000 invested in a low-cost fund like the Vanguard S&P 500 ETF incurs just $30 in annual fees.
In sum, don't assume that just because the S&P 500 is up or down that the majority of stocks are doing well. This year is a great example of that, as the individual stocks that are posting exceptional returns simply aren't collectively large enough to move the needle if all the Magnificent Seven members are down.
