2 Unstoppable Vanguard ETFs to Buy at $900 During the S&P 500 Bull Market

of S&P 500 (^GSPC 0.55%) it represents 500 companies (with 503 stocks) and includes stocks from all 11 sectors of the US economy, giving it relative diversity. Stocks from the technology sector make up about 30% of its weighting, giving investors ample exposure to several fast-growing stocks, including those related to artificial intelligence (AI).

The S&P 500 hit a new record high in January 2024, confirming a bull market that began when the index bottomed in late 2022 was underway. Since then it has continued to march higher, with an increase of nearly 18% so far in 2024.

Even with all those gains, it’s not too late to buy as the odds favor a level of upside in any given year for the S&P 500. Since 1919, the index has been positive on an annual basis approximately three out of every four years of its existence. This suggests that those who can invest in the market generally have a good chance of making money. Exchange-traded funds (ETFs) offer an easy way to capture those gains and even beat them in some cases.

Vanguard issues some of the most affordable ETFs in the world. Here’s why investors with $900 cash available to invest might want to use it to take advantage of this recent bull market and buy a piece of Vanguard S&P 500 ETF (VOO 0.62%) and a part of Vanguard S&P 500 Growth ETF (VOOG 0.58%).

1. Vanguard S&P 500 ETF

The Vanguard S&P 500 ETF has a very simple objective: Track the performance of the S&P 500 index by holding the same stocks and maintaining identical sector weightings. It is incredibly cheap for investors to own, with an expense ratio of just 0.03% (the portion of the fund that is deducted each year to cover management costs).

In dollar terms, that means a $10,000 investment in the ETF would incur an annual fee of just $3. Vanguard says comparable funds offered by competitors are 26 times more expensive, with an average expense ratio of 0.78%, which could negatively impact returns over the long term.

As mentioned earlier, technology is the largest of the 11 sectors in the S&P 500, with a weight of 30.6%. In fact, the top five stocks in the index (and the Vanguard ETF) operate in the technology industry:

Data source: Vanguard. Portfolio weightings are accurate as of May 31, 2024 and are subject to change.

All five of these companies have entered the AI ​​race. Microsoft agreed to invest $10 billion in ChatGPT creator OpenAI last year and used the start-up’s technology to create its own virtual assistant called Copilot. Apple also partnered with OpenAI to develop its Apple Intelligence software, which will launch later this year alongside the iOS 18 operating system.

Nvidia designs the semiconductors that make AI development possible. Its graphics processing units (GPUs) for the data center are the hottest commodity in Silicon Valley, with tech giants and startups snapping up as many supplies as they can get their hands on.

Outside of technology, the financial sector is the second largest in the S&P 500, with a weight of 12.8%. It includes investment banks such as JPMorgan Chase and consumer banks like Bank of America. Healthcare comes next with a 12% weighting, followed by the consumer discretionary sector at 9.8%.

The Vanguard ETF has delivered a compound annual return of 14.5% since its inception in 2010 (in line with the S&P 500). However, that beats the index’s long-term average annual return of 10.4% dating back to 1957, largely due to the rise of high-growth technology stocks over the past decade.

Above-average returns could continue for the foreseeable future on the back of technologies like AI, but investors should expect returns to normalize back to 10% per year over the long term.

2. Vanguard S&P 500 Growth ETF

Investors willing to accept a little more risk for the opportunity to earn higher returns may want to consider the Vanguard S&P 500 Growth ETF. Its objective is to mimic S&P 500 rise index, which holds only the best-performing stocks in the S&P 500 and excludes the rest. These stocks are selected based on factors such as the momentum and sales growth of the underlying companies.

The ETF currently holds 229 stocks from the same 11 sectors as the S&P 500, but the weightings are LOT different. For example, technology represents 48.6% of the S&P 500 growth index, because that’s where most of the momentum and earnings growth is coming from right now.

As a result, the ETF has the same five major holdings as the S&P 500, except each has a much larger weighting:

Data source: Vanguard. Portfolio weightings are accurate as of May 31, 2024 and are subject to change.

The Vanguard S&P 500 Growth ETF has an expense ratio of 0.1%. While this is slightly higher than the S&P 500 ETF, it is still well below the industry average for equivalent funds, which is 0.95% (according to Vanguard).

Plus, the fund has delivered a compound annual return of 16.2% since inception in 2010. Although that’s only 1.7 percentage points higher per year compared to the regular S&P 500 ETF, the effects are significant in dollar terms thanks to composition magic:

Calculations according to the author.

The S&P 500 Growth ETF is rebalanced once a quarter, meaning the worst-performing stocks are removed and replaced by the best performers from the S&P 500. Therefore, the fund should always outperform the S&P 500 over the long term ( theoretically).

However, the fund is susceptible to higher short-term losses due to its heavy exposure to the technology sector. If AI fails to live up to the hype, for example, stocks like Microsoft and Nvidia could suffer steep declines. This could cause the ETF to fall more heavily than the S&P 500, at least until the next rebalancing occurs.

Investors should always be aware of this risk. But as long as technology continues to drive the market, the Vanguard S&P 500 Growth ETF should deliver big long-term returns.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, a former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Bank of America, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia and the Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 Microsoft calls and short January 2026 $405 Microsoft calls. The Motley Fool has a disclosure policy.