The Smartest Vanguard ETF to Buy With $1,000 Right Now

An exchange-traded fund (ETF) that has long been considered one of the best ways to gain exposure to stocks is the Vanguard S&P 500 ETF (NYSEMKT: VOO). It has low costs, offers instant diversification, and has delivered strong long-term returns.

But with trade tensions and the S&P 500 becoming increasingly top-heavy with technology stocks, you may be wondering if the ETF is still a great place to invest $1,000 right now.

The short answer is yes (that just saved you from reading the next 600 or so words). All kidding aside, let's look at why the Vanguard S&P 500 ETF is a great option if you have $1,000 available to invest long-term.

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This ETF can be a core holding in a portfolio

For long-term investors, the Vanguard ETF remains a core holding.

Let's start with the basics. The ETF tracks the S&P 500, an index made up of roughly 500 of the largest companies that trade in the U.S. It's market-cap weighted, which means the bigger the company, the higher its portfolio weighting is and the more influence it has on the performance of the ETF.

Right now, the ETF's top 10 holdings include Apple, Microsoft, Nvidia, Amazon, and Alphabet, with these top five accounting for more than a quarter of the fund, as of the end of April. That level of concentration in large tech-related names has sparked some concern about a lack of diversification.

It's a fair point, as tech now makes up over 30% of the index, and some tech-heavy companies like Amazon are not even classified as being in the technology sector. However, it's also important to understand why these stocks have become such a large part of the S&P 500.

They have earned their top positions in the index through growth and innovation. Most are at the center of the artificial intelligence (AI) boom, which appears to be a once-in-a-generation opportunity.

Souring on megacap stocks simply because they've grown to the heights they have hasn't been a winning strategy in the past. In fact, the Vanguard S&P 500 ETF's market-cap weighting actually helps it do what active managers often struggle to do: Let winners run and minimize the drag from losers.

A J.P. Morgan study found that from 1980 to 2020, over 40% of all stocks in the Russell 3000, which tracks the 3,000 largest companies that trade in the U.S., suffered a decline of 70% or more from which they never fully recovered, and that the majority of stocks underperformed the index.

Yet the market as a whole delivered strong returns during this period because a handful of mega-winners drove overall gains. The structure of the Vanguard S&P 500 ETF captures the performance of these long-term winners while reducing exposure to laggards over time. In essence, it lets the cream rise to the top.

This can be seen in the ETF's strong performance over the past decade. During that stretch, it has delivered a total return of 234.2%, or about 12.8% annually, as of the end of May. Since its inception in 2010, its average annual return is more than 14%. That's more than enough to build serious long-term wealth through compounding.

Data by YCharts.

The power of dollar-cost averaging and compounding

However, for the purposes of this report, the question was posed as to whether now was a good time to invest $1,000. If you did so and just let it sit there at a 12.8% average annual return, you would have an ending balance of over $3,300 in 10 years and more than $37,000 in 30 years.

Those are nice gains, but they are not helping you build wealth. However, if you use a dollar-cost averaging strategy and invest $1,000 each month, then at that same rate of return, you would have an ending balance of around $234,800 in 10 years and $3.6 million after 30 years.

Now we're talking. This shows how the combination of consistent dollar-cost averaging and compounding can work in your favor.

Of course, returns won't come in a straight line, and because of market fluctuations, real-world returns will differ. There will be downturns, corrections, and bear markets along the way, but that's just part of investing, and dollar-cost averaging will help set you up for better returns in the long run.

Meanwhile, the Vanguard S&P 500 ETF's strength is in its Darwinian design (survival of the fittest). It lets the strongest companies grow into larger positions while the laggards shrink or drop off, helping the fund evolve with the market's long-term winners.

In a market where it's tough to consistently pick winners, owning the entire S&P 500 index through this Vanguard fund and letting compounding do the heavy lifting remains a great strategy. If your goal is to grow your wealth over the long haul, start by investing $1,000 in the Vanguard S&P 500 ETF today and continue to invest that same amount each month.

Should you invest $1,000 in Vanguard S&P 500 ETF right now?

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JPMorgan Chase is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Geoffrey Seiler has positions in Alphabet and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, JPMorgan Chase, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.