A low-cost S&P 500 ETF is a great go-to for people looking for an investment that tends to grow with the U.S. economy.
Stock market indexes serve as key benchmarks, and there’s none as important or followed as the S&P 500. The S&P 500 tracks the largest 500 American companies on the market, so many consider it the index of the U.S. stock market. There’s a reason why stock and fund performances are generally compared to the S&P 500’s performance.
Considering the companies in the S&P 500 and their importance to the global economy, it’s no surprise that an S&P 500 exchange-traded fund (ETF) is one of the most popular investments of any type.
There are several ways to invest in the S&P 500, but if you’re looking for the smartest way to invest in the index, look no further than the Vanguard S&P 500 ETF (VOO 0.68%). Let’s take a look at why.
Why the Vanguard S&P 500 ETF over other options?
The S&P 500 is an index, but multiple S&P 500 ETFs are made to mirror it. The SPDR S&P 500 ETF Trust (SPY 0.68%) is the most popular S&P 500 ETF, largely because it’s also the oldest ETF on the U.S. stock exchanges. However, I prefer the Vanguard S&P 500 ETF because it’s cheaper.
The Vanguard S&P 500 ETF’s expense ratio is 0.03%, compared to the SPDR S&P 500 ETF Trust’s 0.0945%. On paper, a 0.0645% difference seems ignorable, but when you’re investing long term, the difference could mean thousands of dollars.
For perspective, let’s imagine you invest $500 into each ETF monthly and average 10% annual returns for 25 years. Below is how your investment totals and fees paid would stack up at the end:
| Expense Ratio | Fees Paid | Investment Total |
|---|---|---|
| 0.03% | $2,600 | $587,400 |
| 0.0945% | $8,300 | $581,700 |
Calculations by author. Fees and investment totals rounded down to the nearest hundred.
The Vanguard S&P 500 contains the same companies but can potentially save you thousands with its cheaper fees. That’s a win in my book.
One investment that covers a lot of ground
The low cost is one piece of the Vanguard S&P 500 ETF’s trifecta. The second part is the diversification of the ETF and how much ground it covers. There are 11 major sectors in the U.S. economy, and this ETF contains companies from each. Here’s how much each sector accounts for in the ETF:
| Sector | Percentage of the ETF |
|---|---|
| Communication services | 8.9% |
| Consumer discretionary | 10.1% |
| Consumer staples | 5.9% |
| Energy | 3.3% |
| Financials | 12.9% |
| Health care | 11.6% |
| Industrials | 8.5% |
| Information technology | 31.7% |
| Materials | 2.2% |
| Other | 0.1% |
| Real estate | 2.3% |
| Utilities | 2.5% |
Data source: Vanguard. Percentages as of Sept. 30.
The ETF is market cap-weighted, so larger companies make up more of the ETF than smaller ones. That’s why the information technology (tech) sector is heavily represented. The “Magnificent Seven” stocks (Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet, and Tesla) have a combined market cap of over $16 trillion, so it’s no surprise they lead the way for the ETF.
Ideally, the ETF would be more diversified like it was in the past, but skyrocketing tech valuations have caused the ETF to be tech-leaning. Still, investors get exposure to every other sector, albeit much less than the tech sector.
It’s hard to argue against the historical performance
The last piece of the trifecta is the ETF’s historical performance. Below is what it has achieved since it was created in September 2010:
A $1,000 investment in this ETF when it was first created would be worth over $6,700 today (including dividends). The 14% average total returns over that span also outperformed many top-name companies and actively managed funds.
It’s always worth noting that past results don’t guarantee future performance, but the S&P 500 has decades of resilience and long-term growth under its belt. It may not be guaranteed to keep happening, but investing in the U.S. economy — which is what investing in this ETF is akin to — is one of the smarter moves anyone can make.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Stefon Walters has positions in Apple, Microsoft, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
