The Smartest S&P 500 ETF to Buy With $2,000 Right Now

Volatile stock prices are worrying investors right now. Amid rising threats of trade wars and an increasing number of economists talking about the potential for a recession, investors have been left trying to piece together what the best investment strategy is.

During this tumultuous time, this quote from a Warren Buffett letter to shareholders back in early 2021 sounds especially important to remember: “Despite some severe interruptions, our country’s economic progress has been breathtaking. Our unwavering conclusion: Never bet against America.”

So, how does one bet on America when the market seems so unstable? One of the best ways is to buy an S&P 500 (^GSPC -1.07%) index fund and there may be no smarter way to do that than to buy the Vanguard S&P 500 ETF (VOO -1.08%).

Here are three reasons why putting $2,000 into this popular ETF right now is a wise move.

1. There’s no easier way to diversify your portfolio

I’m partial to tech stocks, but over the past three months, share prices of many of the biggest technology companies have seen significant declines. Stock values in other industries have tumbled as well, and no one knows which companies will see the fastest rebounds.

With an index fund, you don’t need to be concerned about finding the winners. The Vanguard S&P 500 ETF spreads your $2,000, or however much you invest, across 500 of the largest publicly traded companies in the U.S., instantly diversifying your portfolio.

The S&P 500 briefly entered correction territory recent (falling more than 10% from all-time highs). The index was down about 8.6% from its recent high as of midday Tuesday. When it eventually bounces back — and it always does — you won’t have to worry about picking the winners that are driving those gains.

2. You’ll keep more of your returns

One of the biggest factors in keeping the returns you make from your investments is how much you pay in fees. Some funds are better at charging you low fees than others, and Vanguard is known for having some of the lowest fees.

With the Vanguard S&P 500 ETF, you’ll pay an expense ratio of just 0.03%. That means that if you have $10,000 invested in the ETF, your fees will be just $3 per year. That’s an incredibly inexpensive way to invest, and it means you’ll maximize your gains.

Data by YCharts.

3. You can invest as little as $1

Exchange-traded funds pool contributions from many investors’ together, offering an easy way to own shares of something that may typically be too expensive to purchase yourself. In this case, you can own a little bit of all the companies in the S&P 500. The huge benefit here is that you can invest as little as $1 in the Vanguard S&P 500 ETF. The flexibility to put as little or as much as you want into the fund at any time is significant, especially if you’re dividing up your investment funds between the ETF and other opportunities.

Because there are many other investors in the ETF, buying and selling shares is easy to do and highly liquid, giving you easy access to your money if you need to put it elsewhere.

Remember this rule of investing

The market seems uncertain right now, but one of the most important investing rules is to hold on to stocks during volatility. It’s important to remember that market declines of 10%-plus aren’t uncommon. Research conducted in 2022 by Charles Schwab showed that market declines of at least 10% occurred in 10 of the past 20 years. In short, if you want to invest in stocks, you should expect to experience some significant declines from time to time.

While owning Vanguard’s S&P 500 ETF won’t protect you from the declines, its inherent diversification means you’ll be sure to benefit when the market starts rebounding.

And it will. Since 1974, the S&P 500 has gained more than 8% on average in the month following a correction’s bottom — and it rises more than 24% just one year later. That’s simply too good a track record to pass up.