The Vanguard S&P 500 ETF is still a no-brainer way to ride the market higher.
Warren Buffett still actively manages Berkshire Hathaway‘s massive portfolio, but he’s given his wife surprisingly simple directions for managing her inheritance once he passes away: Invest 90% into a low-cost S&P 500 index fund and the remaining 10% in short-term government bonds.
John Bogle, who popularized index funds through The Vanguard Group, shared a similar view. Bogle argued that since most fund managers couldn’t consistently beat the S&P 500, it was smarter to simply invest in a fund that passively tracked the benchmark index. S&P 500 index funds also charge much lower fees than actively managed funds.
Image source: Getty Images.
Today, it’s easy to invest in the S&P 500 through index funds, which are only traded once per day, or exchange-traded funds (ETFs), which are actively traded throughout the day. So today, I’ll explain why one of the most popular ETFs — the Vanguard S&P 500 ETF (VOO 0.79%) — could easily turn modest $100 monthly investments into more than $40,000.
What is the Vanguard S&P 500 ETF?
Vanguard’s S&P 500 ETF was launched in 2010. It passively invests in the S&P 500 index, charges a low expense ratio of 0.03%, and has a minimum investment of just $1.
If you had invested $100 each month into the ETF since its inception, you would have invested $16,500 over 165 months. After including reinvested dividends, the total value of those holdings would now be worth $45,943 — representing a 178% gain — and generating out about $600 in annual dividends.
The S&P 500 has delivered an average annual return of about 10% since 1957. Assuming it grows at a similar rate over the next few decades, the Vanguard S&P 500 ETF could generate comparable gains over the next two decades.
But is dollar-cost averaging actually the best idea?
By investing $100 into the S&P 500 every month, investors can use dollar-cost averaging to tune out the near-term noise. You would buy more shares of the ETF when the market’s down, and buy fewer shares when it’s rallying.
That’s a safe approach for most investors who don’t have time to follow the markets, but there are also some major drawbacks. The ETF has actually rallied 393% since its inception and generated a total return of 539% after including its reinvested dividends. If you had made a lump sum investment of $16,500 in Vanguard’s ETF and simply left it alone, your investment would be worth about $105,500 today and paying $1,370 in annual dividends.
The lump sum investment generated bigger gains because you would have acquired all of your shares at a lower price instead of paying higher average prices over the subsequent years. So even if you can’t make a big upfront investment, you should still try to increase your monthly investments whenever possible to boost your long-term returns.
But mind the near-term risks
Putting $100 into this ETF each month is a simple way to stay invested with minimal risk, but investors shouldn’t put any cash they’ll need within the next few years into this fund — since the S&P 500 can still experience prolonged drawdowns.
The S&P 500 is historically expensive right now at 25 times forward earnings, and information technology stocks — including Microsoft, Apple, and Nvidia — account for more than 30% of the entire index. Many of those stocks are being lifted higher by the buying frenzy in AI stocks. If those market leaders stumble over the next few quarters, the S&P 500 could experience a sharp pullback.
That said, Vanguard’s S&P 500 ETF is still a great long-term play for investors who don’t plan to cash out for another few decades. Lump sum investments might fare better, but dollar-cost averaging is still a safe way to ride the markets higher.
Leo Sun has positions in Apple. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, Microsoft, Nvidia, 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.
