Is the Vanguard 500 Index Fund ETF a Buy Now?

Key Points

• Vanguard 500 Index ETF tracks the S&P 500 index just like you would expect it to.

• Vanguard 500 Index ETF has a very low expense ratio.

• The S&P 500 index is trading near all-time highs and has a rich valuation.

• 10 stocks we like better than Vanguard S&P 500 ETF ›

If you are looking at Vanguard 500 Index ETF (NYSEMKT: VOO) as an investment option today, there are two things you need to consider. The first is how well it achieves its aim of tracking the S&P 500 index (SNPINDEX: ^GSPC). The second reason, which may actually be more important to you, is how you can expect it to perform from here.

Image source: Getty Images.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

What does Vanguard 500 Index ETF do and how well does it do it?

From a big-picture perspective, Vanguard 500 Index ETF's only goal is to track the performance of the S&P 500 index. The S&P 500 is a portfolio of roughly 500 stocks selected by a committee to be representative of the broader U.S. economy. The stocks in the index are market-cap weighted, so the largest businesses have the biggest impact on performance. That's logical and is basically how the economy works.

VOO data by YCharts

Vanguard 500 Index ETF's value on the last trading day of August was $593.08 per share. The price that the exchange-traded fund (ETF) traded for among investors was $592.70 per share. It is basically tracking along with the value of its portfolio, which is the value of index. Performance-wise, the S&P 500 index is up 227.6% over the past decade while Vanguard S&P 500 Index ETF is up 227.5%, which is virtually identical.

So, Vanguard S&P 500 index ETF does what it sets out to do. But it also does it for a very attractive cost -- a 0.03% expense ratio. That's as close to free on Wall Street as you can probably get and lower than some of the other S&P 500 index alternatives. So if you want to track the S&P 500 index, then Vanguard S&P 500 index ETF could be a good buy for you right now.

Do you want to track the S&P 500 index?

From a long-term perspective, the S&P 500 index has been a wonderful investment choice. A look at the long-term performance graph below shows that the trend is up and to the right. Even some of the worst recessions and bear markets are mere blips along the way higher at this point. If you are looking for an easy investment that doesn't require a lot of thought, Vanguard S&P 500 Index ETF could be a great choice for you.

^SPX data by YCharts

The problem is that the S&P 500 index swings between bull and bear markets. To put that another way, stocks move higher in a jagged pattern. That's an issue right now because the S&P 500 index is currently trading near all-time highs. It could easily keep moving higher, but if you care at all about valuation, you'll likely be worried that the next big move could be lower.

To put some numbers on that, Vanguard S&P 500 Index ETF has an average price-to-earnings ratio of 27.6x. Its average price-to-book value ratio is 5x. Both of those figures are high from a historical standpoint. While there's no way to know where the S&P 500 index goes from here, the clear evidence is that the index is likely closer to a top than it is to a bottom.

Thus, if the question is whether it is worth buying the S&P 500 index right now, you have to think about your Vanguard S&P 500 index ETF decision a little differently. History suggests you will be fine even if you buy today, assuming you hold for a very long time. But you may have to go through a material drawdown in the near term, given the lofty valuation of the index that this ETF tracks.

Is the Vanguard 500 Index Fund ETF a buy now?

The answer to the big question here is, unfortunately, it depends. If you are an active investor who likes to trade a lot, you will probably be better off with something other than Vanguard S&P 500 Index ETF. When, not if, there's another bear market, you could be tempted to sell an investment that really needs to be bought and held for decades. However, if your plan is to buy this ETF and just keep adding to it through thick and thin, then even today, when the S&P 500 index looks expensive, could still be a good time to buy.

Should you invest $1,000 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 $654,759!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,046,799!*

Now, it’s worth noting Stock Advisor’s total average return is 1,042% — a market-crushing outperformance compared to 183% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of August 25, 2025

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.