2 Unstoppable Vanguard ETFs to Buy at $900 During the S&P 500 Bull Market

The S&P 500 is trading at a record high, driven by the technology sector, but it’s not too late to buy for the long term.

THE S&P 500 (^GSPC 0.55%) represents 500 companies (with 503 stocks) and includes stocks from all 11 sectors of the U.S. economy, giving it some relative diversity. Technology stocks make up about 30% of its weighting, giving investors broad exposure to some fast-growing stocks, including those related to artificial intelligence (AI).

The S&P 500 Index hit a new record high in January 2024, confirming the start of a bull market that began when the index bottomed in late 2022. Since then, it has continued to rise, with a gain of nearly 18% so far in 2024.

Despite all these gains, it’s not too late to buy, as the odds favor some growth in any given year for the S&P 500. Since 1919, the index has been positive on an annual basis about three out of every four years of its existence. That suggests those who can invest in the market as a whole have a good chance of making money. Exchange-traded funds (ETFs) offer an easy way to capture these gains, and in some cases even surpass them.

Vanguard issues some of the most affordable ETFs in the world. Here’s why investors with $900 in spare cash to invest might want to use it to take advantage of this latest bull market and buy a share of the company. Vanguard S&P 500 Exchange Traded Fund (VOO 0.62%) and an action of the Vanguard S&P 500 Growth Exchange Traded Fund (VOOG 0.58%).

1. Vanguard S&P 500 Exchange Traded Fund

The Vanguard S&P 500 ETF has a very simple goal: to track the performance of the S&P 500 index by owning the same stocks and maintaining identical sector weightings. It is incredibly cheap for investors, with a expense ratio of only 0.03% (the portion of the fund taken each year to cover management fees).

In dollar terms, this means an investment of $10,000 in the FNB The annual fee is said to be just $3. Comparable funds offered by its competitors are 26 times more expensive, with an average expense ratio of 0.78%, Vanguard says, which can negatively impact long-term returns.

As I mentioned earlier, technology is the largest of the 11 sectors in the S&P 500, with a weighting of 30.6%. In fact, all five of the largest stocks in the index (and the Vanguard ETF) are in the technology sector:

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Vanguard ETF Portfolio Weighting

Data source: Vanguard. Portfolio weights are accurate as of May 31, 2024 and are subject to change.

These five companies have jumped into the AI ​​race. Microsoft has agreed to invest $10 billion in the creator of ChatGPT OpenAI Last year, it used the startup’s technology to create its own virtual assistant called Copilot. Apple has also partnered with OpenAI to develop its Apple Intelligence software, which will launch later this year alongside the iOS 18 operating system.

Nvidia designs the semiconductors that make AI possible. Its graphics processing units (GPUData center servers are the hottest commodity in Silicon Valley, with tech giants and startups alike buying up as many supplies as they can get their hands on.

Outside of technology, the financial sector is the second largest in the S&P 500, with a weighting of 12.8%. It includes investment banks like JPMorgan Chase and consumer banks like Bank of AmericaThe healthcare sector comes next with a weighting of 12%, followed by the consumer discretionary sector with 9.8%.

Since its inception in 2010, the Vanguard ETF has generated a compound annual return of 14.5% (in line with the S&P 500). However, that’s higher than the index’s long-term average annual return, which dates back to 1957, of 10.4%, largely due to the rise of high-growth technology stocks over the past decade.

Above-average returns could continue for the foreseeable future thanks to technologies like AIbut investors should expect gains to return to 10% per year over the long term.

2. Vanguard S&P 500 Growth ETF

Investors willing to accept a little more risk for the potential to earn higher returns might consider the Vanguard S&P 500 Growth ETF. Its goal is to mimic the S&P 500 Growth index, which contains only the best-performing stocks in the S&P 500 and excludes the rest. These stocks are selected based on factors such as the momentum and sales growth of the underlying companies.

The ETF currently holds 229 stocks from the same 11 sectors as the S&P 500but the weightings are very different. For example, technology represents 48.6% of the S&P 500 Growth Index, because that is where most of the momentum and revenue growth is currently coming from.

As a result, the ETF has the same top five stocks as the S&P 500, except they each have a much larger weighting:

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Vanguard Growth ETF Portfolio Weighting

Data source: Vanguard. Portfolio weights are accurate as of May 31, 2024 and are subject to change.

The Vanguard S&P 500 Growth exchange-traded fund has an expense ratio of 0.1%. While this is slightly higher than the S&P 500 exchange-traded fund, it is still well below the industry average for similar funds, which is 0.95% (according to Vanguard).

Additionally, the fund has generated a compound annual return of 16.2% since its inception in 2010. While that’s only 1.7 percentage points higher per year than the typical S&P 500 ETF, the effects are significant in dollar terms thanks to the magic of compounding:

Starting balance (2010)

Compound annual return

Review after 14 years

Author’s calculations.

The S&P 500 Growth ETF is rebalanced once a quarter, meaning that the worst-performing stocks are removed and replaced with the best-performing stocks in the S&P 500. Therefore, the fund should always outperform the S&P 500 over the long term (in theory).

However, the fund is likely to suffer larger losses in the short term due to its high exposure to the technology sector. AI fails to meet expectations, for example, actions like Microsoft and Nvidia could suffer sharp declines. This could cause the ETF to fall more severely than the S&P 500, at least until the next rebalancing.

Investors should always keep this risk in mind. But as long as technology continues to drive the market, the Vanguard S&P 500 Growth ETF should provide excellent long-term returns.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Bank of America, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 call on Microsoft and short January 2026 $405 call on Microsoft. The Motley Fool has a position in Amazon, Apple, Bank of America, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 call on Microsoft and short January 2026 $405 call on Microsoft. disclosure policy.

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