The Vanguard S&P 500 ETF (NYSEMKT: VOO), also known by its ticker symbol VOO, is one of the most popular funds in the world. Including Vanguard’s mutual fund version of the same index fund, investors have $1.4 trillion in assets invested in it.
As the name suggests, this is an index fund that tracks the benchmark S&P 500 (SNPINDEX: ^GSPC) over time. In other words, if the S&P 500 produces a 20% total return for investors over the next two years, this ETF should do the same, net of fees.
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Speaking of fees, as a Vanguard ETF, the investment expenses of this index fund are extremely low. It has an expense ratio of just 0.03%, which means that for every $1,000 in assets, your annual investment cost will be just $0.30, which will be reflected in the fund’s performance over time.
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The Vanguard S&P 500 ETF is generally thought of as an excellent “core” investment for a stock portfolio. And in full disclosure, I own shares of it in my own retirement portfolio. But if I were to put new money to work today, I may choose to go in a slightly different direction and buy shares of a similar ETF that has one big difference.
My biggest problem with the Vanguard S&P 500 ETF
To be clear, the Vanguard S&P 500 ETF is a great index fund. If you’re simply looking for a low-cost way to match the stock market’s performance over time, it could be an excellent addition to your portfolio.
My biggest issue with investing in the S&P 500 is that it has become rather top-heavy in recent years. With the emergence of trillion-dollar tech companies, the S&P 500 is weighted so that well over one-third of its performance is derived from the 10 largest components.
In a nutshell, an S&P 500 index fund has increasingly become a bet on the largest few dozen U.S. companies, and has become less of a broad, diversified way of getting stock market exposure.
An S&P 500 ETF that does things a little differently
If I were putting new money to work today, I would take a closer look at the Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP). It invests in the same 500 companies you’ll find in the portfolio of the Vanguard S&P 500 ETF, but with one key difference.
Instead of allocating assets based on the size of each component, it invests an equal amount in all 500 companies. Of course, there are day-to-day fluctuations, but there’s about 0.2% of the fund’s assets invested at any given time. This means that smaller components of the S&P 500 like Dollar General carry the same weight as megacaps like Microsoft.
The equal-weight fund does have a somewhat higher 0.20% expense ratio, but this is still on the lower end for a unique ETF.
As mentioned, there’s absolutely nothing wrong with a traditional S&P 500 index fund. But if you’re not too much of a fan of having your investment’s performance largely dependent on just a few companies, this equal-weight counterpart could be worth a closer look.
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Matt Frankel has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Microsoft 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.
