2 Unstoppable Vanguard ETFs to Buy for $800 During S&P 500 Selloff

The S&P 500 (SNPINDEX: ^GSPC) the index rose 15% in the first half of 2024 with almost no volatility. It was practically a dream period for investors. But since then it has fallen 8.5% from its all-time high, with most of that decline coming in August alone as a result of the Japanese currency shock.

History suggests that the S&P 500 always climbs to new highs given enough time, so corrections are usually a buying opportunity. However, choosing individual stocks to buy can be difficult, especially for investors who don’t follow the market closely. Exchange-traded funds (ETFs) are a great alternative because they can provide exposure to an entire index (such as the S&P 500) or a specific segment of the market.

Vanguard is one of the largest issuers of ETFs in the world, and its products are popular for their very low cost. Here’s why investors with cash to spare might want to set aside $800 to buy a share of the Vanguard S&P 500 ETF (NYSEMKT:VOO)and a share of Vanguard S&P 500 Growth ETF (NYSEMKT: VOOG) during the recent market correction.

1. Vanguard S&P 500 ETF

The objective of the Vanguard S&P 500 ETF is simple: Track the performance of the S&P 500 by holding the same 500 companies (503 stocks, as some companies have dual class structures) and maintaining the same portfolio weightings as the index.

The S&P 500 has very strict entry criteria and only the highest quality stocks make the difference. For example, companies must have a valuation of at least $18 billion to qualify for inclusion and must also be profitable in the most recent 12-month period.

Additionally, because the S&P 500 is a market-cap-weighted index, it has high exposure to US trillion-dollar tech giants that are leaders in emerging industries such as artificial intelligence (AI). In fact, the five largest holdings in the Vanguard ETF (and the S&P 500) account for 26.7% of the total value of its entire portfolio:

Data source: Vanguard. Portfolio weightings are accurate as of June 30, 2024 and are subject to change.

Nvidia is perhaps the most driven by the success of AI, as it is the main supplier of data center chips needed to develop the technology and accounts for most of the company’s revenue. The other four companies in the table above are also investing heavily in AI, but each has successful businesses in their own right.

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Amazon, for example, dominates both the e-commerce industry and the cloud services industry. Meta Platforms, on the other hand, hosts globally dominant social networks such as Facebook and Instagram.

Although the technology sector has a 32.5% weighting in the Vanguard ETF, 10 other sectors are also represented, including financials, healthcare and consumer discretionary. That means it also includes stocks like the pharmaceutical giant Eli Lillyglobal investment bank JPMorgan Chaseand Visa. It even has Warren Buffett’s Berkshire Hathaway investment conglomerate.

Vanguard ETFs are popular for their cheap holding costs. It has an expense ratio of just 0.03%, which is the portion of the fund deducted each year to cover administration costs. Vanguard says comparable funds are more than 20 times more expensive, with an average expense ratio of 0.78%. This eats into long-term returns.

The Vanguard ETF has delivered a compounded annual return of 14.5% since its inception in 2010, which is in line with the S&P 500’s return.

2. Vanguard S&P 500 Growth ETF

The Vanguard S&P 500 Growth ETF is an excellent option for investors willing to accept more volatility in exchange for an opportunity to earn even higher returns than the S&P 500. Its objective is to track the performance of S&P 500 rise index, which holds 231 of the best-performing growth stocks in the regular S&P 500, excluding the rest.

It selects those stocks based on their momentum, the underlying company’s sales growth, and the ratio of their earnings to the stock price. Since the biggest tech stocks fit these criteria perfectly, it’s no surprise that the top five holdings in the Vanguard S&P 500 Growth ETF are identical to the S&P 500 ETF.

However, they represent 44.4% of the entire portfolio, which is a significantly higher share.

Data source: Vanguard. Portfolio weightings are accurate as of June 30, 2024 and are subject to change.

In fact, the technology sector as a whole has a 50.9% weighting in the growth ETF. That creates a certain concentration risk. This means that if AI fails to live up to the hype, for example, stocks like Nvidia could suffer steep losses, which will reduce the performance of the entire ETF.

The good news is that the S&P 500 Growth Index rebalances every quarter, so it weeds out any underperforming stocks and replaces them with new ones that meet its criteria. In theory, that means it will always beat the regular S&P 500 over the long term because it weeds out the worst performers in the index.

In fact, the Vanguard Growth ETF has delivered a compounded annual return of 15.9% since its inception in 2010. While it’s only 1.4% better than the S&P 500 each year, it makes a big difference in terms of dollars due to compositional effects.

Calculations by author.

The Growth ETF is slightly more expensive to own, with an expense ratio of 0.1%, but is still substantially cheaper than comparable funds in the industry, according to Vanguard.

Buying this ETF in the middle of a correction can be a great way to supercharge any portfolio, as long as investors take a long-term view.

Should you invest $1,000 in the Vanguard S&P 500 ETF right now?

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

Stock Market Correction: 2 Unstoppable Vanguard ETFs to Buy for $800 During S&P 500 Selloff was originally published by The Motley Fool