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.

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 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. Dividends are typically cash payments paid to investors by companies as a reward for owning their company's stock.

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.

Fund Snapshot

Some of the key characteristics of the Vanguard S&P 500 (as of Feb. 28, 2023, unless otherwise stated) include:

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.

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 27.25% of the fund's portfolio.

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.

How to Invest in the Vanguard S&P 500 ETF

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. 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.

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.

Correction—September 27, 2022: A previous version of this article incorrectly indicated that TD Ameritrade offers fractional share purchases of ETFs; they do not; however, Schwab has purchased Ameritrade and Schwab does offer this service.