Should You Buy the Vanguard S&P 500 ETF With the Stock Market At a Fresh Record High? The Answer Might Surprise You.

The S&P 500 (^GSPC +1.20%) hit a fresh record high on Wednesday, April 15, capping off a spectacular recovery from its recent 9% peak-to-trough decline. Investor sentiment turned positive after the U.S. and Iran reached a ceasefire agreement on April 8, leading to the eventual reopening of the critical Strait of Hormuz waterway which handles 25% of the world’s seaborne oil supply every day.

These positive developments alleviated fears of a global energy shortage, which initially threatened to reignite inflation and dent corporate earnings. But the situation is far from over, because Iran once again restricted commercial vessels from transiting the Strait this weekend, pending further negotiations with the U.S. As a result, it’s unclear whether the recent stock market highs will hold.

The Vanguard S&P 500 ETF (VOO +1.25%) is an exchange-traded fund (ETF) that directly tracks the performance of the S&P 500 by holding the same stocks and maintaining similar weightings. Should investors buy it following the index’s spectacular recovery? Read on for the surprising answer.

The ideal ETF for investors of all experience levels

The S&P 500 is a highly diversified index, because it tracks 500 American companies from 11 different sectors of the economy. To qualify for inclusion, a company must be profitable, and it must maintain a market capitalization of at least $22.7 billion. But even after ticking those boxes, a special committee still has the final say over which companies make the cut, which ensures the index maintains the highest possible standards.

The S&P 500 is weighted by market capitalization, so larger companies in the index have a much higher representation than smaller companies, and thus have a greater influence over its performance. Therefore, although the index is diversified, it is quite top-heavy. Below are its three largest sectors by weighting, along with the three most valuable companies within each of them.

Data source: Vanguard. Sector weightings are accurate as of March 31, 2026, and are subject to change.

The other eight S&P 500 sectors are consumer discretionary, healthcare, industrials, consumer staples, energy, utilities, materials, and real estate.

Nvidia, Apple, and Microsoft are three of the world’s largest companies, with a combined market cap of $12 trillion. But the information technology sector is also home to other high-value names like Broadcom which is worth $1.9 trillion, and Micron Technology which is worth over $500 billion.

All five of those companies operate at the forefront of the artificial intelligence (AI) boom, so while disruptions like the U.S.-Iran war could cause volatility in their stock prices in the short-term, they are likely to continue building on their enormous market caps over the longer run.

In fact, according to Nvidia CEO Jensen Huang, data center operators are likely to spend up to $4 trillion per year on infrastructure by 2030 to meet the soaring demand for computing capacity from AI developers. That would be roughly 10-times the amount companies used to spend on classical computing infrastructure each year, so this is a significant financial opportunity for the tech sector.

The Vanguard S&P 500 ETF is one of the most cost-effective ways to invest in the S&P 500. Its expense ratio of 0.03% means an investment of $50,000 would incur an annual fee of just $15.

History points to surprisingly modest returns going forward

Stock market volatility is a normal part of the investing journey. It’s the price investors pay for an opportunity to earn wealth-building returns over the long-term, and in fact, those who treated sell-offs as buying opportunities have done extraordinarily well.

Over the last 26 years alone, the S&P 500 has recovered from no less than four bear markets (declines of 20% or more), caused by events like the bursting of the dotcom bubble in the year 2000, the global financial crisis in 2008, the COVID-19 pandemic in 2020, and the inflation surge in 2022.

The S&P 500 has delivered a compound annual return of 10.5% since its inception in 1957 (assuming all dividends were reinvested), even after factoring in every sell-off, correction, and bear market along the way. But there is a caveat — the index currently trades at over 20 times forward earnings, and according to a study by JP Morgan Chase, investors are likely to earn more modest annual returns of 5% or less over the next decade from this level.

That doesn’t mean investors should wait on the sidelines for a better opportunity, but parking a large lump sum in the Vanguard S&P 500 ETF at record highs probably won’t be the most rewarding strategy. Instead, investors might be better off deploying smaller sums of money consistently each month for the foreseeable future, which will allow them to dollar-cost average at lower prices in the event of another sell-off. And if more volatility does strike, that might be the time to invest more aggressively.

Considering the status of the Strait of Hormuz is still uncertain, investors might not have the confidence to continue piling into stocks from here, which could open the door to some downside in the short-term.