The S&P 500 is within striking distance of a fresh all-time high. Is now a good time to invest?
The Vanguard S&P 500 ETF (VOO 0.15%) is one of the best ways to invest in the S&P 500, which has been a pretty smart strategy over the long term. Since 1965, the S&P 500 has produced a total return of 10.2% annualized. The Vanguard ETF has an expense ratio of just 0.03%, so you get to keep most of your gains.
While there's no guarantee that the S&P 500 will achieve the same level of performance in the future, it has historically produced 9%-10% annualized returns over most multidecade periods. Having said that, the S&P 500 isn't too far from its all-time high (as of this writing), so it's natural for investors to wonder whether now might be a good time to buy shares in an S&P 500 index fund or if it would be smarter to wait for a better opportunity.
Just under an all-time high
The S&P 500 and several other major stock indices have reached all-time highs this year and remain close to record levels. In the case of the S&P 500, the index is less than 3% below its all-time high, as of April 29.
^SPX data by YCharts.
Should you wait for a correction?
One important thing for all investors to learn is that timing the market is impossible. And quite frankly, it's unimportant if you're investing in a high-quality S&P 500 index fund for the long term. Even if you buy at a market peak, your long-term returns should likely be excellent.
For example, let's say you invested in the S&P 500 at its peak in 2007 -- just before the financial crisis sent the market plunging. By the time the S&P 500 bottomed in early 2009, it had lost about 50%. So this would seem like a pretty awful time to invest.
However, you might be surprised to learn that if you had invested in an S&P 500 index fund at the worst possible time before the 2008-2009 financial crisis, you would be sitting on a 355% total return today. If you look at the chart below, the actual 2008-2009 stock market crash barely looks like a blip over the long run. And that's the point.
^SPXTR data by YCharts.
It's also worth noting that just because the S&P 500 is near an all-time high doesn't mean it can't go even higher. Many people were "waiting for a correction" in the 2014-2015 time frame after a long post-financial crisis rally and never got one.
A better strategy
Having said that, the best way to invest in S&P 500 ETFs is a little at a time, not all at once.
One excellent strategy is to invest equal amounts of money at certain intervals. This is known as dollar-cost averaging, and mathematically, it guarantees that you'll buy more shares when prices are lower and fewer shares when prices are high.
As a basic illustration of this, let's say you plan to invest $1,000 in the Vanguard S&P 500 index fund every three months. Right now, the fund is trading for approximately $470 per share, so assuming your broker allows you to buy fractional shares, you'd buy 2.13 shares of the index fund.
Now let's say that a market correction comes, and the share price of the fund falls to $430 by the time you're ready to make another investment. This time, your $1,000 investment will buy 2.33 shares.
The bottom line is that by averaging into a fund like the Vanguard S&P 500 ETF, you're going to get a favorable average share price over time. A strategy like this is a far better way to invest than trying to decide whether to invest a lump sum now or later.
Matt Frankel has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
FAQs
Key Points. The S&P 500 has been soaring in 2024. Despite a historically high 10-year cyclically adjusted P/E ratio, the Vanguard S&P 500 ETF still screens as a buy. Two key tailwinds underscore this viewpoint.
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What is the prediction for the Vanguard S&P 500? ›
VOO 12 Month Forecast
Based on 504 Wall Street analysts offering 12 month price targets to VOO holdings in the last 3 months. The average price target is $543.20 with a high forecast of $633.10 and a low forecast of $449.52. The average price target represents a 11.60% change from the last price of $486.73.
Should I wait to buy ETFs? ›
If you wait to buy an ETF until you are sure it will pay off for you, you'll probably pay a higher price. You are better off to buy sooner—when you are “pretty sure,” rather than “certain.” By the time you're sure an ETF is a good buy, many other investors may have come to share that opinion.
What is the best ETF to buy right now? ›
- Top 7 ETFs to buy now.
- Vanguard 500 ETF.
- Invesco QQQ Trust.
- Vanguard Growth ETF.
- iShares Core SP Small-Cap ETF.
- iShares Core Dividend Growth ETF.
- Vanguard Total Stock Market ETF.
- iShares Core MSCI Total International Stock ETF.
Several short-term signals are positive and we conclude that the current level may hold a buying opportunity, as there is a fair chance for VOO ETF to perform well in the short-term period.
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What is the average annual return for the Vanguard S&P 500 ETF? ›
Vanguard S&P 500 (VOO): Historical Returns
In the last 30 Years, the Vanguard S&P 500 (VOO) ETF obtained a 10.36% compound annual return, with a 15.12% standard deviation.
Dividend Summary
There are typically 4 dividends per year (excluding specials), and the dividend cover is approximately 1.0.
What is the best S&P 500 index fund? ›
Best S&P 500 index funds
- Fidelity 500 Index Fund (FXAIX).
- Vanguard 500 Index Fund Admiral Shares (VFIAX).
- Schwab S&P 500 Index Fund (SWPPX).
- State Street S&P 500 Index Fund Class N (SVSPX).
The Vanguard S&P 500 ETF (VOO 0.08%) is one of the best ways to invest in the S&P 500, which has been a pretty smart strategy over the long term. Since 1965, the S&P 500 has produced a total return of 10.2% annualized. The Vanguard ETF has an expense ratio of just 0.03%, so you get to keep most of your gains.
Should I invest money now or wait? ›
The key to long-term investing success
So rather than waiting for the ideal time to invest, it's often better to buy now and hold your investments for the long term. Even if you invest at the "wrong" time, it can still pay off over time. For example, say you invested in an S&P 500 index fund in October 2021.
What is the best day of the week to buy ETFs? ›
The best time of day to buy stocks is usually in the morning, shortly after the market opens. Mondays and Fridays tend to be good days to trade stocks, while the middle of the week is less volatile.
Is Vanguard ETF worth buying? ›
The Vanguard Value Index Fund ETF Shares (VTV -1.05%) stands out as an excellent choice for investors seeking reliable income and capital appreciation. This ETF tracks the CRSP US Large Cap Value Index, focusing on stocks with large market capitalizations and compelling valuations.
Should I invest in ETF or S&P 500? ›
A well-diversified ETF such as one based on the S&P 500 can beat most investors over time, making it easy for regular investors to do well in the market. ETFs tend to be less volatile than individual stocks, meaning your investment won't swing in value as much.
What is the best ETF for S&P 500? ›
What's the best S&P 500 ETF?
| ETF | Ticker | Annualized 5-year return |
|---|
| iShares Core S&P 500 ETF | IVV | 15.01% |
| SPDR S&P 500 ETF Trust | SPY | 14.14% |
| Vanguard S&P 500 ETF | VOO | 13.15% |
May 1, 2024
With an expense ratio of 0.03%, it's not hard to understand why VOO has more than $1 trillion in assets under management (AUM). While VOO is up 11.1% in 2024, I believe it's going to continue to increase throughout the rest of the year.
