Is the Vanguard S&P 500 ETF safe?
The Vanguard S&P 500 ETF (VOO 0.05%) is one of the most popular investment options for index investors. And with good reason. Its low expense ratio and strong track record of tracking the index make it a great option for those simply looking to match the S&P 500.
Because it's designed to follow the performance of the market, it's impossible for it to beat the market. If that's an important goal for you, investing in individual stocks may be a better strategy. S&P 500 ETFs can be a fantastic option for those looking for a safer, more reliable, and lower-effort investment.
| Fund | Ticker | Expense Ratio % |
|---|---|---|
| Vanguard S&P 500 ETF | VOO | 0.03 |
| iShares Core S&P 500 ETF | IVV | 0.03 |
| SPDR Portfolio S&P 500 ETF | SPLG | 0.02 |
| Vanguard 500 Admiral | VFIAX | 0.04 |
It has a perfect long-term track record. The S&P 500 itself has a decades-long history of recovering from every recession, market crash, or bear market it has ever faced. In fact, research shows that no matter when you invest, you're likely to make money with an S&P 500 ETF -- as long as you keep a long-term outlook.
Investing in the S&P 500 index fund, such as VOO, is a winning long-term strategy. Historical data shows that the market has consistently gone higher despite obstacles and downturns.
According to our calculations, a $1000 investment made in February 2014 would be worth $5,971.20, or a gain of 497.12%, as of February 5, 2024, and this return excludes dividends but includes price increases. Compare this to the S&P 500's rally of 178.17% and gold's return of 55.50% over the same time frame.
The single biggest risk in ETFs is market risk. Like a mutual fund or a closed-end fund, ETFs are only an investment vehicle—a wrapper for their underlying investment. So if you buy an S&P 500 ETF and the S&P 500 goes down 50%, nothing about how cheap, tax efficient, or transparent an ETF is will help you.
Vanguard S&P 500 ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, VOO is a great option for investors seeking exposure to the Style Box - Large Cap Blend segment of the market.
The Vanguard S&P 500 ETF (VOO 0.96%) is one of the most popular investment options for index investors. And with good reason. Its low expense ratio and strong track record of tracking the index make it a great option for those simply looking to match the S&P 500.
You only need one S&P 500 ETF
You could be tempted to buy all three ETFs, but just one will do the trick. You won't get any additional diversification benefits (meaning the mix of various assets) because all three funds track the same 500 companies.
How much would $1000 invested in the S&P 500 in 1980 be worth today?
In 1980, had you invested a mere $1,000 in what went on to become the top-performing stock of S&P 500 (^GSPC 0.63%), then you would be sitting on a cool $1.2 million today. That equates to a total return of 120,936%. The stock? None other than Gap (GPS 4.66%).
ETFs are designed to track the market, not to beat it
But many ETFs track a benchmarking index, which means the fund often won't outperform the underlying assets in the index. Investors who are looking to beat the market (potentially a riskier approach) may choose to look at other products and services.
Assuming an average annual return rate of about 10% (a typical historical average), a $10,000 investment in the S&P 500 could potentially grow to approximately $25,937 over 10 years.
They can be especially valuable to beginning investors. That's because they won't require the time, effort, and experience needed to research individual stocks. The cost to own an ETF may be lower than the cost to buy a diversified selection of individual stocks, too.
All investments carry some risk, and Vanguard ETFs are no exception. But Vanguard is a fund provider with a reliable company history, and well-diversified ETFs tend to be safer than individual stocks.
With the S&P 500 roaring higher in the new bull market, now is a great time to invest in stocks -- whether you're a seasoned investor or just getting started.
Lack of Global Diversification
The S&P 500 is all US-domiciled companies that over the last ~40 years have accounted for ~50% of all global stocks. By just owning the S&P 500 you miss out on almost half of the global opportunity set which is another ~10,000 public companies.
| Years Invested | Balance At the End of the Period |
|---|---|
| 10 | $102,422 |
| 20 | $379,684 |
| 30 | $1,130,244 |
| 40 | $3,162,040 |
| Discount Rate | Present Value | Future Value |
|---|---|---|
| 5% | $1,000 | $2,653.30 |
| 6% | $1,000 | $3,207.14 |
| 7% | $1,000 | $3,869.68 |
| 8% | $1,000 | $4,660.96 |
ETFs may close due to lack of investor interest or poor returns. For investors, the easiest way to exit an ETF investment is to sell it on the open market. Liquidation of ETFs is strictly regulated; when an ETF closes, any remaining shareholders will receive a payout based on what they had invested in the ETF.
Why is S&P 500 risky?
The S&P 500 index fund has evolved into an un-diversified portfolio concentrated on expensive technology companies. Many investors, professional and retail alike, don't appreciate the hidden but significant concentration, valuation and inflation risks.
In contrast, the riskiest ETF in the Morningstar database, ProShares Ultra VIX Short-term Futures Fund (UVXY), has a three-year standard deviation of 132.9. The fund, of course, doesn't invest in stocks. It invests in volatility itself, as measured by the so-called Fear Index: The short-term CBOE VIX index.
Investors can buy and sell Vanguard mutual funds and ETFs through any number of brokerage firms and financial advisors. If you buy directly through Vanguard, you may benefit from lower fees, better customer service, and additional product research.
Vanguard S&P 500 ETF (VOO)
"ETFs are a good investment option as they offer diversification, low costs and the ability to trade shares during the trading day," Wybar says.
The Vanguard S&P 500 ETF offers investors a great way to get exposure to a key broad market benchmark, and it does so at a notably low cost. Another plus: The fund's dividend yield is a proxy for the overall stock market's yield.
