These exchange-traded funds complement each other and offer great benefits to investors.
Exchange-traded funds (ETFs) are a relatively new investing instrument, but they’ve rapidly become an incredibly popular tool for investors. They trade just like stocks, and investing in them doesn’t usually require a large initial outlay. There are many ETFs on the market today, and much like mutual funds, some are actively managed while others are passively managed. But the ones based on the S&P 500 are still the classics.
If you’re looking for an excellent ETF to keep your money in forever and have $1,000 that you’re ready to invest now, I have two fantastic options to recommend: the Vanguard S&P 500 ETF (VOO -0.08%) and the Vanguard S&P 500 Growth ETF (VOOG 0.17%).
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Buy the market
The idea behind an S&P 500 ETF is that it mimics the benchmark index, making it easy for individual investors to rapidly acquire a portfolio of all 500 of its large and megacap components. These funds take a lot of the guesswork out of investing, minimize risk, and offer incredible diversification with low fees.
Investors often talk about beating the market — it turns out, that’s not so simple. According to the Spiva Scorecard, which tracks how large-cap funds perform, in any given year, most actively managed funds underperform the market — as represented by the broad-based S&P 500. The better the market does, the harder it is to outperform it. Since the market does well most years, it’s hard to beat it.
For example, last year, the S&P 500 gained 25%, and 65% of large-cap funds underperformed it. The average over the past 24 years that Spiva has kept records was 64%. The last time a majority of actively managed funds outperformed the market was in 2009 — that year, only 48% underperformed. That’s still nearly half. Instead of trying — and frequently failing — to beat the market, investors can simply buy the market.
Beating the market can be done, of course. Warren Buffett usually does, and he still recommends that most individual investors buy an S&P 500 fund. Even the Berkshire Hathaway equity portfolio had stakes in two such funds until recently. Retail investors who own a well-chosen, diversified portfolio of 25 to 30 stocks have a good chance of outperforming, but they can still benefit from having a portion of their money in an S&P 500 ETF as part of a broader investing strategy.
The Vanguard S&P 500 ETF is the largest ETF, with $1.3 trillion in assets under management. Investors have confidence in the Vanguard name, and it charges a low expense ratio of 0.03%, in contrast with what it says is an industry average of 0.75% for similar ETFs.
Beat the market
If you’re ready to kick this strategy up a notch, you might want to buy shares of the Vanguard S&P 500 Growth ETF. It tracks the S&P 500 Growth index, which comprises a group of about 200 of the highest-growth stocks in the S&P 500. That’s still a well-diversified portfolio, so the risk is low — although not quite as low as a group of 500. However, it provides a more concentrated level of exposure to the growth components in the benchmark index: for example, about 42% of the weight in the fund is in the information technology sector.
Further, since it’s a weighted index, the largest companies in the fund account for massive slices of the index. Today, its top three holdings are Nvidia, Microsoft, and Meta Platforms, which collectively account for about a third of the total portfolio.
That’s great exposure to the top stocks on the market. Moreover, stocks that aren’t performing well are automatically dropped from the index (and the ETF) during the quarterly rebalancings, leaving only the cream of the crop without any active trading on the investor’s part. The expense ratio is a still-low 0.07%, vs. an average of 0.93% for similar ETFs.
Over time, the index’s growth strategy has led to market outperformance. Consider what you would have today if you’d invested $10,000 in the S&P 500 ETF vs. the S&P 500 Growth ETF a decade ago.
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For many investors, the right way to play this dichotomy would be to buy shares of both of these S&P 500 ETFs. That way, you get the stability and reliability of an investment in the broad market, but also a more concentrated exposure to its growth components.
Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Meta Platforms, 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.