The Vanguard S&P 500 ETF (VOO) is a fund that invests in the stocks of some of the largest companies within the United States. Vanguard’s VOO is an exchange traded fund (ETF) that tracks the S&P 500 index by owning all of the equities within the S&P 500.
An index is a hypothetical portfolio of stocks or investments representing a specific portion of the market or the entire market. The S&P 500 and the Dow Jones Industrial Average (DJIA) are both examples of broad-based indexes. Investors cannot invest in an index, per se. Instead, they can invest in funds that mirror an index by owning the stocks within the index.
The Vanguard S&P 500 ETF is a popular and reputable index fund. The S&P 500’s investment return is considered a gauge of the overall U.S. stock market.
Key Takeaways
- The Vanguard S&P 500 ETF (VOO) tracks the S&P 500 index by investing in all of the stocks within the S&P 500.
- The Vanguard S&P 500 ETF is appealing for many investors since it’s well-diversified and comprised of equities of large U.S. corporations.
- The Vanguard S&P 500 ETF offers low fees since the fund’s management team is not actively trading by buying and selling stocks.
Understanding the Vanguard S&P 500 ETF (VOO)
The S&P 500 represents 500 of the largest U.S. companies. The goal of the Vanguard S&P 500 ETF (VOO) is to track the returns of the S&P 500 index.
VOO is appealing for many investors since it’s well-diversified and comprises equities of large corporations—called large-cap stocks. Large-cap stocks tend to be more stable with a solid track record of profitability versus smaller companies.
The broad-based, diversified portfolio of stocks within the fund can help lessen, but not eliminate, the risk of loss in the event of a market correction. Some of the key characteristics of the Vanguard S&P 500 (as of Jan. 5, 2022) include:
- Assets under management (AUM): $827.2 billion
- Expense ratio: 0.03%
- SEC Yield (30-day): 1.25%
- One-year performance: 28.60%
- Performance since the inception date of Sept. 07, 2010: 445.33%
- Minimum investment: The price of one share
Please note that the SEC yield is a standardized metric mandated by the Securities Exchange Commission (SEC), which provides investors with a common yardstick for comparing the interest earned and dividend yield of various funds. Dividends are typically cash payments paid to investors by companies as a reward for owning their company’s stock.
The Vanguard S&P 500 ETF’s Largest Holdings
Listed below are the top ten holdings of the VOO along with their portfolio weightings, which in total make up slightly more than 30% of the fund’s portfolio.
| Top Ten Holdings of Vanguard S&P 500 ETF (VOO) | |
|---|---|
| Holdings | Percentage |
| Apple Inc. | 6.70% |
| Microsoft Corp. | 6.40% |
| Alphabet Inc. | 4.30% |
| Amazon.com Inc. | 3.90% |
| Tesla Inc. | 2.40% |
| NVIDIA Corp. | 2.10% |
| Meta (formerly Facebook) | 2.00% |
| Berkshire Hathaway Inc. | 1.30% |
| JPMorgan Chase & Co. | 1.20% |
| Home Depot Inc. | 1.10% |
Equity Sector Diversification
Many funds contain equities from several sectors within the economy. A sector is a large grouping of companies organized by similar business activities, such as a product or service.
For example, the consumer staples sector represents essential goods, such as toilet paper, while the consumer discretionary sector represents non-essential goods, such as luxury items. Below is the weighting of each sector within the Vanguard S&P 500 ETF.
| Equity Sector Diversification for Vanguard S&P 500 ETF (VOO) | |
|---|---|
| Equity Sector | Sector Weighting |
| Information Technology | 29.40% |
| Consumer Discretionary | 13.20% |
| Health Care | 12.70% |
| Financials | 10.80% |
| Communication Services | 10.40% |
| Industrials | 7.80% |
| Consumer Staples | 5.60% |
| Energy | 2.70% |
| Real Estate | 2.60% |
| Materials | 2.50% |
| Utilities | 2.30% |
How To Invest In the Vanguard S&P 500 ETF (VOO)
It is important to remember that shares for ETFs trade just like ordinary stock—i.e., you can purchase or sell them anytime during the trading hours. You can purchase shares for the Vanguard S&P 500 ETF through your broker-dealer or an investing app like Robinhood. It is also possible to own fractional shares of the ETF by specifying the purchase amount in dollars.
The majority of broker-dealers and apps do not charge purchase commission fees. However, a surefire way to ensure that you do not pay commission fees is to open a brokerage account with the fund provider, Vanguard, on their website. The caveat of such a move is that your portfolio universe may become restricted to products offered by Vanguard unless you open accounts with other firms or providers. Unlike its index funds, Vanguard does not have minimum investment amounts for its ETFs.
Even though you may not end up paying commissions to purchase the stock, there are other expenses baked into the fund’s operations. According to a Jan. 5, 2022, reading of the fund prospectus, the fund charges annual operating expenses of 0.03%. There are also fees for portfolio turnover. This means that the fund manager incurs expenses each time they reconstitute the portfolio by buying or selling securities, thereby inflating the overall expenses. As of January 2022, the portfolio turnover rate for the fund currently stands at 4%. Despite the fees, however, the Vanguard S&P 500 remains one of the cheapest and most accessible ways to invest in the S&P 500.
Vanguard S&P 500 Dividend History and Yields
| VOO Dividend History | ||||
|---|---|---|---|---|
| Year/ Dividend Amount | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter |
| 2013 | — | $0.369 | $0.786 | $0.914 |
| 2014 | $0.779 | $0.809 | $0.876 | $1.026 |
| 2015 | $0.984 | $0.902 | $0.953 | $1.092 |
| 2016 | $1.002 | $0.953 | $0.883 | $1.296 |
| 2017 | $0.998 | $1.01 | $1.176 | $1.184 |
| 2018 | $1.084 | $1.157 | $1.207 | $1.289 |
| 2019 | $1.455 | $1.386 | $1.301 | $1.429 |
| 2020 | $1.178 | $1.433 | $1.309 | $1.383 |
| 2021 | $1.263 | $1.333 | $1.308 | $1.533 |
| VOO Annual Dividend Yield | |
|---|---|
| Year | Yield |
| 2011 | 2.08% |
| 2012 | 2.49% |
| 2013 | 2.40% |
| 2014 | 2.08% |
| 2015 | 2.10% |
| 2016 | 2.23% |
| 2017 | 2.14% |
| 2018 | 1.94% |
| 2019 | 2.44% |
| 2020 | 1.81% |
| 2021 | 1.59% |
The Risk of Loss From Dangerous Theories
Think back to the real estate boom of the mid-2000s. A common theory as to why real estate prices would appreciate forever was: “They’re not building more land.” This theory meant that supply would be limited, which would lead to increased demand and continuously rising prices.
Unfortunately, many investors were unprepared for the impending real estate crash, which led to the 2007-2008 Financial Crisis in part due to loose lending practices.
Now consider a similar theory with U.S. stocks: “It’s the only place to put your money right now.” An added incentive for many investors has been that if everyone sees U.S. equities as the only place to put their money, it will continue to drive equity prices higher.
In other words, it’s essential that investors not become complacent in thinking the market can only go up. With investing in the stock market, there is a risk of market downturns and corrections, which can lead to a significant decline in an investor’s portfolio and financial loss.
Valuable Dollars
Investors looking for a low-cost, low-maintenance fund that provides them with access to U.S. equity markets might opt for the Vanguard S&P 500 ETF. However, each investor must consider the level of risk they’re willing to take when investing—called risk tolerance. Also, how long the money will be invested in the market should be considered.
Risk Tolerance and Time Horizon
Younger investors might opt to invest all their money in the equity markets since their portfolio has many years to make up for investment losses due to market corrections. Conversely, investors who are at or near retirement might opt for low-risk stocks and securities.
Risk-averse investors might buy U.S Treasury bonds and bills. Although the yield or interest is not always attractive, Treasuries are considered risk-free assets since they’re backed by the U.S. Treasury. As a result, investors can’t lose their principal or initial investment if the bond is held until its maturity or expiration date.
Rising and Falling Prices
Some investors concerned about the possibility of deflation, which is a decline in the prices of goods in an economy, may leave their money in cash. Although it may appear counterintuitive, if deflation occurs, the cash value in dollars can increase.
Conversely, some investors might be concerned about inflation, which is the pace at which prices increase in an economy. As a result, investors might invest in the stock market, including the Vanguard S&P 500 ETF, hoping to achieve a higher return rate than inflation.
Other investors might invest in securities that adjust for rising prices in the economy. For example, Treasury inflation-protected securities (TIPS) are designed to adjust in price as inflation increases, protecting investors so they never receive less than the original amount invested.
What is the Vanguard S&P 500 ETF?
The Vanguard S&P 500 ETF (VOO) is a fund that invests in the stocks of some of the largest companies within the United States. It tracks and mirrors the performance of the S&P 500 index.
How many stocks are present in the Vanguard S&P 500 Index ETF?
The Vanguard S&P 500 Index ETF had 505 stocks in its portfolio, as of Dec. 2021.
Does Vanguard S&P 500 Index Fund Pay Dividends?
Yes, the Vanguard S&P 500 pays quarterly dividends. You can see the fund’s dividend history and yield in the tables above.
Can I buy fractional shares of the Vanguard S&P 500 ETF?
Vanguard does not enable purchase of fractional shares for VOO on its platform. But you can purchase fractional shares of the ETF on other investing platforms, such as TD Ameritrade and Robinhood. It is always a good idea to inquire with the platform whether they offer this service before making the purchase.
Will the Vanguard S&P 500 (VOO) ETF Split?
The Vanguard S&P 500 (VOO) ETF has undergone a split just once in its lifetime. It occurred in Oct. 24, 2013, when its share price was falling. The company conducted a 1-for-2 reverse split, meaning it combined every two shares held by its investors into a single one. The reverse split reduced the number of shares in circulation and doubled the ETF’s price. It also reduced the spread, of the difference between the buying and selling price of shares, for investors.
The Bottom Line
Investing in the Vanguard S&P 500 ETF is a passive investment strategy in which the fund tracks the performance of the S&P 500. In other words, the fund’s management team is not actively trading by buying and selling stocks, which helps maintain the lower expense ratio.
Investing in Vanguard’s VOO is a low-stress way for investors to access the U.S. equity market. However, there is the risk of loss as with any investment, and investors should consult a financial professional before investing in the Vanguard S&P 500 ETF.
Dan Moskowitz does not own shares of VOO.