2 Unstoppable Vanguard ETFs to Buy with $800 During the S&P 500 Bull Market

THE S&P500 (SNPINDEX: ^GSPC) hit a new record high earlier this year, cementing the bull market that began when the index bottomed in October 2022. As it continues to advance, investors might wonder if it is too late to buy.

It’s almost impossible to time the market, but history shows that time in the market is far more important when it comes to generating reliable returns. In fact, the S&P 500 has generated a compound annual return of 10.3% since its inception in 1957, meaning a $1,000 investment back then would be worth more than $761,355 today.

Purchasing an exchange-traded fund (ETF) is a great way to capture these gains in a diversified and secure way. The Vanguard Group is one of the largest ETF issuers in the world and offers several funds designed to track the performance of popular indices like the S&P 500.

Here’s why investors with spare cash might want to allocate $800 to buy a stock of the Vanguard S&P 500 ETF (NYSEMKT: VOO) and a share of Vanguard S&P 500 Growth ETF (NYSEMKT:VOOG).

1. Vanguard S&P 500 ETF (VOO)

The objective of VOO ETFs is simply to track the performance of the S&P 500. It does this by owning a stake in all 500 companies in the index, with very similar weightings.

The S&P 500 is incredibly diverse, making it a great choice for investors of all experience levels. It is home to 11 different sectors, including information technology, healthcare, energy, finance and real estate, and therefore covers a wide range of the US economy.

Companies must meet strict criteria to be admitted to the S&P 500, including a minimum market capitalization of $18 billion and the need to be profitable, so they automatically filter out high-risk stocks that may be prone to volatility.

The top five holdings in the VOO ETF (and the S&P 500) come from the information technology sector, as it is home to the world’s largest technology companies:

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VOO ETF portfolio weighting

Data source: Vanguard. Portfolio weightings are accurate as of April 30, 2024 and are subject to change.

These five companies have a decades-long track record and continue to lead the charge in new technology segments like artificial intelligence (AI). Microsoft is integrating AI across its product portfolio, thanks in part to its $10 billion investment in ChatGPT creator OpenAI last year. Apple also plans to bring AI capabilities to its 2.2 billion active devices worldwide, from the iPhone to the Mac line of computers.

The story continues

But AI wouldn’t be possible without Nvidia. It designs the industry’s most powerful chips for data centers, where developers build, train and deploy their AI models. Simply put, despite its diverse composition, the VOO ETF still offers investors exposure to the most interesting segments of the technology industry.

The VOO ETF is also popular for its cheap holding costs. It has an expense ratio of just 0.03%, which is deducted from the fund’s total assets each year to cover personnel, marketing and general operating costs. Vanguard says comparable funds in the industry charge 0.79% on average, eating into long-term investors’ returns.

Investors looking to track the performance of the S&P 500 Index (which I described earlier) should look no further than the VOO ETF.

2. Vanguard S&P 500 Growth ETF (VOOG)

Investors who want the opportunity to earn a higher return by taking on a little more risk should consider the VOOG ETF. He follows the S&P 500 Growth Indexwhich exclusively owns 228 of the fastest growing stocks in the S&P 500 Index.

He selects these stocks based on their revenue growth, the relationship between their earnings change and their stock price and their momentum. The same 11 sectors of the S&P 500 are represented in this index, but their weightings are very different. For example, Information Technology represents 29.2% of the S&P 500 Index, but 46.8% of the S&P 500 Growth Index. Why? Because tech companies tend to grow faster than their peers.

Therefore, unsurprisingly, the top five holdings in the VOOG ETF are exactly the same as those in the VOO ETF, but pay close attention to their weightings – Microsoft, for example, represents 12.48% of the total value of VOOG, compared to only 6.83% for VOO.

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Weighting of the VOOG ETF portfolio

Data source: Vanguard. Portfolio weightings are accurate as of April 30, 2024 and are subject to change.

The heavy weighting of technology stocks is at the origin of VOOG’s outperformance compared to VOO (which I will quantify in a moment). Nvidia stock, for example, has soared 223% over the past year, so naturally the ETF that holds more Nvidia shares has produced higher returns.

There are a few caveats. First, if technologies like AI don’t live up to the hype, tech stocks could experience a period of underperformance that will weigh on the VOOG ETF’s returns, at least until its portfolio be rebalanced to reflect this new reality.

Second, VOOG has an expense ratio of 0.1%, which is slightly higher than the VOO ETF (but still cheap relative to the sector), so investors will pay a premium for the opportunity to ‘obtain higher returns.

Over the past year, the VOOG ETF has gained 26.6% compared to the VOO ETF’s return of 22.6%. Since its inception in 2010, VOOG has generated a compound annual return of 15.3%, compared to 14% for VOO. While this may not seem like outperformance, the additional 1.3% compounded over 14 years makes a substantial difference:

Starting balance

Compound Annual Return

Balance after 14 years

Calculations by author.

Therefore, there is no better time than now to buy this growth ETF. The longer investors hold it, the better their potential returns will be.

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Suzanne Frey, an executive at Alphabet, 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 holds positions in and recommends the Alphabet, Amazon, Apple, Microsoft, Nvidia and Vanguard S&P 500 ETFs. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January $405 calls 2026 on Microsoft. The Mad Motley has a disclosure policy.

2 Unstoppable Vanguard ETFs to Buy with $800 During the S&P 500 Bull Market was originally published by The Motley Fool

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