The Vanguard S&P 500 ETF (NYSEMKT: VOO) has always been one of the best long-term investments for everyday, regular folks. But there are some legitimate questions about whether now is the right time to invest. Is it too top-heavy? Is it too concentrated in tech? Is it primed for a pullback given how far it’s risen in the past few years?
Currently, it has roughly 40% of the index invested in tech stocks. Almost 40% is accounted for just by the top 10 holdings. Both are historically high figures, which makes the S&P 500 less diversified than at almost any other point in its history.
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Despite this, I believe the Vanguard S&P 500 ETF remains one of the best long-term investment options. A big part of the reason why is the same reason it’s become historically concentrated — its market-cap weighting methodology.
That strategy helps the index evolve over time in line with the state of the U.S. economy. At different points in history, railroads, energy, financials, and now technology have been the biggest sector allocations. If something else emerges in the future, the index composition will likely change again to give that greater weighting. The S&P 500 (SNPINDEX: ^GSPC) essentially reconstitutes itself over time.
Plus, let’s not forget that it includes hundreds of the biggest and most successful companies in the United States. That makes an ideal portfolio cornerstone in almost any situation. There will be times when it’s concentrated, where it’ll underperform, or it’ll experience a 20% to 30% drawdown. That’s just part of what the S&P 500 is and does.
But it’s still a great long-term investment.
Should you buy stock in Vanguard S&P 500 ETF right now?
Before you buy stock in Vanguard S&P 500 ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard S&P 500 ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $334,793!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,257,420!*