A Look at 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 in the United States. 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. The S&P 500's investment return is considered a gauge of the overall U.S. stock market.

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. Instead, they can invest in funds that mirror an index.

Key Takeaways

  • The Vanguard S&P 500 ETF (VOO) tracks the S&P 500 index by investing in all of the stocks in the S&P 500.
  • The Vanguard S&P 500 ETF is appealing to many investors because it's well-diversified and comprised of the equities of large U.S. corporations.
  • The Vanguard S&P 500 ETF offers low fees because the fund's management team is not actively trading, and instead just mirroring the S&P 500.

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 appeals to investors because it's well-diversified and is made up of equities of large corporations—called large-cap stocks. Large-cap stocks tend to be more stable with a solid track record of profitability as opposed to 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 Apr. 20, 2022) include:

  • Fund total net assets: $841.7 billion
  • Expense ratio: 0.03%
  • SEC yield (30-day): 1.31%
  • 3-year performance: 18.93%
  • Annualized return since inception (Sept. 7, 2010): 15.34%

Please note that the SEC yield is a standardized metric mandated by the Securities and 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 10 holdings of the VOO along with their portfolio weightings, which in total make up 30.4% of the fund's portfolio.

Top 10 Holdings of the Vanguard S&P 500 ETF (VOO)
 Holdings  Percentage
Apple Inc. 7.0%
Microsoft Corp. 6.0%
Alphabet (GOOG & GOOGL) 4.2%
Amazon.com 3.7%
Tesla Inc. 2.3%
Nvidia 1.8%
Berkshire Hathaway 1.7%
Meta (formerly Facebook) 1.3%
UnitedHealth Group 1.2%
Johnson & Johnson 1.2%
Data as of March 31, 2022

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 nonessential goods, such as luxury items. Below is the weighting of each sector within the Vanguard S&P 500 ETF.

Equity Sector Diversification for the Vanguard S&P 500 ETF (VOO)
 Equity Sector Sector Weighting
Information Technology 28.0%
Healthcare 13.6%
Consumer Discretionary 12.0%
Financials 11.1%
Communication Services 9.4%
Industrials 7.9%
Consumer Staples 6.1%
Energy 3.9%
Real Estate 2.7%
Utilities 2.7%
Materials 2.6%
Data as of March 31, 2022

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—meaning you can purchase or sell them anytime during trading hours. You can purchase shares for the Vanguard S&P 500 ETF through your broker-dealer or an investing app such as 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 avoid paying commission fees is to open a brokerage account with the fund provider, Vanguard, on its 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. The VOO ETF has 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. The portfolio turnover rate for the fund was 2.3% at the end of 2021. 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

Here is a breakdown of the quarterly distributions the Vanguard S&P 500 ETF has paid.

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
2022 $1.374 -- -- --

The Risk of Loss From Dangerous Theories

Think back to the real estate boom of the mid-2000s. A common theory was that land is a limited resource. 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 2008 financial crisis in part due to loose lending practices.

Now consider a similar theory with U.S. stocks, where, at times, it might appear to be the only place to put your money. 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 is important to consider.

Risk Tolerance and Time Horizon

Younger investors might opt to invest all their money in the equity markets because 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 because 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 in 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 506 stocks in its portfolio as of March 31, 2022.

Does the Vanguard S&P 500 Index Fund Pay Dividends?

Yes, the Vanguard S&P 500 pays quarterly dividends, and as of March 31, 2022, yielding 1.31%.

Can I Buy Fractional Shares of the Vanguard S&P 500 ETF?

Vanguard does offer the ability to purchase 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.

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 on 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.

Article Sources

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