The S&P 500 is within striking distance of a fresh all-time high. Is now a good time to invest?
The Vanguard S&P 500 ETF (VOO 0.10%) is one of the best ways to invest in the S&P 500, which has been a pretty smart strategy over the long term. Since 1965, the S&P 500 has produced a total return of 10.2% annualized. The Vanguard ETF has an expense ratio of just 0.03%, so you get to keep most of your gains.
While there's no guarantee that the S&P 500 will achieve the same level of performance in the future, it has historically produced 9%-10% annualized returns over most multidecade periods. Having said that, the S&P 500 isn't too far from its all-time high (as of this writing), so it's natural for investors to wonder whether now might be a good time to buy shares in an S&P 500 index fund or if it would be smarter to wait for a better opportunity.
Just under an all-time high
The S&P 500 and several other major stock indices have reached all-time highs this year and remain close to record levels. In the case of the S&P 500, the index is less than 3% below its all-time high, as of April 29.
^SPX data by YCharts.
Should you wait for a correction?
One important thing for all investors to learn is that timing the market is impossible. And quite frankly, it's unimportant if you're investing in a high-quality S&P 500 index fund for the long term. Even if you buy at a market peak, your long-term returns should likely be excellent.
For example, let's say you invested in the S&P 500 at its peak in 2007 -- just before the financial crisis sent the market plunging. By the time the S&P 500 bottomed in early 2009, it had lost about 50%. So this would seem like a pretty awful time to invest.
However, you might be surprised to learn that if you had invested in an S&P 500 index fund at the worst possible time before the 2008-2009 financial crisis, you would be sitting on a 355% total return today. If you look at the chart below, the actual 2008-2009 stock market crash barely looks like a blip over the long run. And that's the point.
^SPXTR data by YCharts.
It's also worth noting that just because the S&P 500 is near an all-time high doesn't mean it can't go even higher. Many people were "waiting for a correction" in the 2014-2015 time frame after a long post-financial crisis rally and never got one.
A better strategy
Having said that, the best way to invest in S&P 500 ETFs is a little at a time, not all at once.
One excellent strategy is to invest equal amounts of money at certain intervals. This is known as dollar-cost averaging, and mathematically, it guarantees that you'll buy more shares when prices are lower and fewer shares when prices are high.
As a basic illustration of this, let's say you plan to invest $1,000 in the Vanguard S&P 500 index fund every three months. Right now, the fund is trading for approximately $470 per share, so assuming your broker allows you to buy fractional shares, you'd buy 2.13 shares of the index fund.
Now let's say that a market correction comes, and the share price of the fund falls to $430 by the time you're ready to make another investment. This time, your $1,000 investment will buy 2.33 shares.
The bottom line is that by averaging into a fund like the Vanguard S&P 500 ETF, you're going to get a favorable average share price over time. A strategy like this is a far better way to invest than trying to decide whether to invest a lump sum now or later.
Matt Frankel has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
FAQs
Should you wait for a correction? One important thing for all investors to learn is that timing the market is impossible. And quite frankly, it's unimportant if you're investing in a high-quality S&P 500 index fund for the long term. Even if you buy at a market peak, your long-term returns should likely be excellent.
Should I buy S&P 500 now or wait? ›
If you'd invested back in October 2022 when the S&P 500 bottomed out, you'd have earned substantial returns by today. But hindsight is 20/20, and since you can't go back in time, your only options are to invest now or wait. Between those two options, investing now is almost always more lucrative.
What is the prediction for the Vanguard S&P 500? ›
Average Price Target
Based on 504 Wall Street analysts offering 12 month price targets to VOO holdings in the last 3 months. The average price target is $546.82 with a high forecast of $636.44 and a low forecast of $450.82. The average price target represents a 12.27% change from the last price of $487.06.
Is Vanguard S&P 500 ETF a good buy? ›
Vanguard S&P 500 ETF (VOO)
Expense ratio: 0.03 percent. That means every $10,000 invested would cost $3 annually. Who is it good for?: Great for investors looking for a broadly diversified index fund at a low cost to serve as a core holding in their portfolio.
Is joining Motley Fool worth it? ›
For investors looking for stock ideas and actionable guidance, Motley Fool is likely worth the reasonable annual fees. The stock research alone can pay for the membership cost if you invest in just a couple successful picks. However, more advanced investors doing their own analysis may not find sufficient value-add.
Should I invest in the stock market now or wait? ›
Based on the stock market's historic performance, there's never necessarily a bad time to buy -- as long as you keep a long-term outlook. The market can be volatile in the short term (even in strong economic times), but it has a perfect track record of seeing positive returns over many years.
Is it smart to buy S&P 500? ›
The S&P 500 is generally considered one of the most reliable indicators of the overall health and direction of the US stock market. Investors and analysts use the S&P 500 as a benchmark to gauge the performance of their investment portfolios, as well as the general state of the US economy.
What is the forecast for the S&P 500 ETF? ›
Average Price Target
Based on 504 Wall Street analysts offering 12 month price targets to SPY holdings in the last 3 months. The average price target is $594.02 with a high forecast of $692.10 and a low forecast of $489.45. The average price target represents a 12.12% change from the last price of $529.83.
What is the average annual return for the Vanguard S&P 500 ETF? ›
Quarterly after-tax returns
| S&P 500 ETF | 1-yr | 10yr |
|---|
| Returns after taxes on distributions | 29.36% | 12.42% |
| Returns after taxes on distributions and sale of fund shares | 17.91% | 10.66% |
| Average Large Blend Fund | |
| Returns before taxes | 27.24% | 11.45% |
3 more rowsIn the last 30 Years, the Vanguard S&P 500 (VOO) ETF obtained a 10.36% compound annual return, with a 15.12% standard deviation.
Vanguard High Dividend Yield ETF (VYM)
The better Vanguard ETF for their needs is likely VYM, which delivers a higher 2.9% 30-day SEC yield by targeting the FTSE High Dividend Yield Index. It also charges the same expense ratio as VIG does, at 0.06%.
Which S&P 500 ETF is the best? ›
- 8 Best S&P 500 ETFs of May 2024.
- SPDR S&P 500 ETF Trust (SPY)
- iShares Core S&P 500 ETF (IVV)
- Vanguard 500 Index Fund (VOO)
- SPDR Portfolio S&P 500 ETF (SPLG)
- Invesco S&P 500 Equal Weight ETF (RSP)
- SPDR Portfolio S&P 500 Growth ETF (SPYG)
- Vanguard S&P 500 Value Index Fund ETF (VOOV)
Overview of the Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF (I'll call it "the Vanguard ETF" hereafter) is designed to provide investors with exposure to the S&P 500 index at a low cost. Known for its superior expense ratio, the Vanguard ETF is a favorite among cost-conscious investors.
What is The Motley Fool's top 10 stocks? ›
The Motley Fool has positions in and recommends Alphabet, Amazon, Chewy, Fiverr International, Fortinet, Nvidia, PayPal, Salesforce, and Uber Technologies. The Motley Fool recommends the following options: short June 2024 $67.50 calls on PayPal. The Motley Fool has a disclosure policy.
What are Motley Fool's double down stocks? ›
"Double down buy alerts" from The Motley Fool signal strong confidence in a stock, urging investors to increase their holdings.
Is it a good time to invest right now? ›
If you're looking to invest for your future -- five, 10, or 40 years from now -- now is as good a time as ever to buy stocks. Despite ongoing recession fears, it's important to remember the market is forward-looking. Stock values are based on future expected earnings.
What are the top 10 stocks to buy right now? ›
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| Company (ticker) | Analysts' consensus recommendation score | Analysts' consensus recommendation |
|---|
| Amazon.com (AMZN) | 1.29 | Strong Buy |
| Nvidia (NVDA) | 1.33 | Strong Buy |
| Microsoft (MSFT) | 1.33 | Strong Buy |
| Bio-Techne (TECH) | 1.39 | Strong Buy |
21 more rowsU.S. stock index funds are some of the best investments for a Roth IRA. S&P 500 index funds are popular choices. “By doing the S&P, you're getting a piece of all 500 companies (in the index),” said Myles Clements, a certified financial planner and financial advisor with Fort Pitt Capital Group.
What is the best time of day to buy S&P 500? ›
The opening period (9:30 a.m. to 10:30 a.m. Eastern Time) is often one of the best hours of the day for day trading, offering the biggest moves in the shortest amount of time. A lot of professional day traders stop trading around 11:30 a.m. because that is when volatility and volume tend to taper off.
