Is the Vanguard 500 Index Fund ETF a Buy Now?
The recent stock market downturn has left many investors wondering if it’s a good time to invest in exchange-traded funds (ETFs) such as the Vanguard S&P 500 ETF (VOO). The ETF, which tracks the performance of the S&P 500 index, has seen its value decline by approximately 15% year-to-date. However, according to The Motley Fool, a reputable financial publication, this may be an excellent opportunity to invest in the Vanguard S&P 500 ETF.
A Proven Long-Term Winner
The Vanguard S&P 500 ETF has a proven track record of long-term success, as reported by The Motley Fool. The ETF has generated a total return of 223.7% over the past 10 years, which translates to an average annual return of 12.5%. Since its inception in September 2010, the ETF has delivered an average annual return of 14%. As The Motley Fool notes, if you had invested $1,000 in the S&P 500 index 30 years ago, your investment would be worth around $17,500 today, despite going through bear markets related to the dot-com bust, the 2008 financial crisis, and the COVID-19 pandemic.
The S&P 500 index consists of approximately 500 of the largest companies that trade on US stock exchanges, with a market capitalisation-weighted approach that gives more weight to larger companies. The index makes adjustments for shares closely controlled by insiders, but market capitalisation is generally calculated using a stock’s shares outstanding multiplied by its share price. The Vanguard S&P 500 ETF tracks the performance of this index very closely, with an extremely low expense ratio.
Top Holdings and Weightings
The ETF’s top holdings and their weightings as of the end of February include:
| Holding | Weighting |
|---|---|
| Apple | 7.2% |
| Nvidia | 6.1% |
| Microsoft | 5.8% |
| Amazon | 3.9% |
| Alphabet | 3.6% |
| Meta Platforms | 2.9% |
| Berkshire Hathaway | 1.9% |
| Broadcom | 1.8% |
| Tesla | 1.6% |
| JPMorgan Chase | 1.5% |
Market Volatility and Investment Strategy
The current market volatility has been caused by the COVID-19 pandemic and the subsequent economic lockdowns. However, The Motley Fool notes that investors should consider taking a cautious approach when investing in the Vanguard S&P 500 ETF. The publication suggests that investors should slowly begin to dip their toes into the market by buying the ETF, but not pour money into the market all at once. Instead, investors should consider using a dollar-cost averaging strategy, which involves investing in the ETF at set times and with set dollar increments.
Dollar-Cost Averaging
This strategy can help lower the cost basis of investments during a down market and set investors up for strong returns when the market begins to turn. As The Motley Fool advises, "stocks are still one of the best ways to accumulate wealth over the long term, so stay invested and look to continue to use the ongoing weakness to build positions."
Long-Term Success
The Vanguard S&P 500 ETF’s long-term success can be attributed to its ability to capture the success of stocks that grow to be mega-winners, while letting its losers become less important or eventually drop out of the index. According to The Motley Fool, "the index’s success largely stems from letting its winners run as its losers become less important or eventually drop out of the index." This approach has allowed the ETF to deliver strong performance over the long term.
Investment Advice
In conclusion, The Motley Fool views the Vanguard S&P 500 ETF as a solid investment option, particularly for those with a long-term investment horizon. As the publication notes, "there will be periods of short-term weakness to deal with, but history has shown it will eventually recover." Therefore, investors should consider taking a cautious approach and using a dollar-cost averaging strategy to invest in the ETF.
The Motley Fool’s investment advice is clear: investors should consider slowly beginning to dip their toes into the market by buying the Vanguard 500 ETF, but with a cautious approach. As the publication states, "I think investors should consider slowly beginning to dip their toes into the market by buying the Vanguard 500 ETF, but I wouldn’t be pouring money into the market. More volatility is likely in the short term. Instead, I would take a more cautious approach, adding to positions on the dips that are likely to keep coming as the market works to figure out the new normal here."
Source: The Motley Fool
