The Vanguard S&P 500 ETF (VOO) Is the Most Popular ETF in the World. Here’s One I Like Even Better.
It’s hard to beat the market. And more and more people are realizing that, instead of trying to, it makes sense to invest in it instead.
Today, many indexes serve as proxies for the market’s performance. The S&P 500 (SNPINDEX: ^GSPC) is the benchmark index, comprising a cross-section of U.S. public companies that have each reached a market cap of at least $22.7 billion. It has a bias toward growth companies, and the requirements to join the index include consistent profitability. Struggling companies tend to get replaced if they can’t recover from a setback. The relatively stringent selection criteria mean the index tends toward growth over time.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
It follows that tracking the S&P 500 with an index fund is a simple way to mimic its returns, and the low-cost Vanguard S&P 500 ETF (NYSEMKT: VOO) has ballooned to $1.7 trillion in total net assets, becoming the largest ETF in the world. Investors love its ease and reliability, and the opportunity to benefit from returns over time. Although it’s a great strategy, there’s another ETF I like even better.
Why investors love the S&P 500 ETF
The Vanguard S&P 500 ETF holds a weighted portfolio of approximately 500 stocks that tracks the broader index. Because it’s cap-weighted, the larger companies account for more of the ETF. Nvidia, Apple, Microsoft, and Amazon are the largest components in the list right now, representing about a quarter of the total. Owning the ETF gives investors exposure to these stocks while minimizing the risk of owning them individually, and shareholders can count on the makeup of the fund changing according to how the components are performing.
The stocks can change weight quickly if they move up or down on some kind of news or market sentiment, so the makeup won’t always match the market weight caps exactly. For example, today, Alphabet is the second-most valuable company in the world, but it’s only the fifth-largest stock in the ETF.
The ETF has a 0.03% expense ratio, one of the lowest out there, so investors keep more of their money. It’s a simple model that works beautifully.
This ETF is likely to keep outperforming
Vanguard manages 116 ETFs, all of which track indexes. The S&P 500 is the largest, but it’s not the highest-performing one. Investors overall prefer its safety.
