One of my main goals in investing is to simplify it as much as possible. While in-depth analysis may be beneficial in some instances, effective investing can, for the most part, be as simple as consistently investing in the S&P 500 .
Tracking the largest 500 U.S. companies in the stock market, the S&P 500 acts as a de facto representation of the U.S. economy. The index consists of the top companies leading the top industries in the U.S., so as they go, so does the U.S. economy.
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If you're looking to invest in the S&P 500 in December, look no further than the Vanguard S&P 500 ETF (NYSEMKT: VOO) .
Should you go with the standard or equal-weight S&P 500 ETF?
Most S&P 500 exchange-traded funds (ETFs) are market-cap weighted, so larger companies (by market capitalization ) make up more of the fund than smaller companies. As an example, here are the top 10 holdings of the Vanguard S&P 500 ETF:
| Company |
Percentage of the ETF |
|---|---|
| Apple |
7.11% |
| Nvidia |
6.76% |
| Microsoft |
6.26% |
| Amazon |
3.61% |
| Meta Platforms |
2.57% |
| Alphabet (Class A) |
2.08% |
| Alphabet (Class C) |
1.72% |
| Berkshire Hathaway (Class B) |
1.71% |
| Broadcom |
1.64% |
| Tesla |
1.44% |
Market caps fluctuate with stock-price changes, and the weight of each holding is also adjusted quarterly, but the above table gives at least a snapshot of how companies' sizes compared to each other as of Oct. 31. For perspective, Apple's market value as of Dec. 4 was around $3.7 trillion, while News Corp -- the ETF's smallest holding -- had a market cap of around $17.5 billion.
On the other hand, there are equal-weight S&P 500 ETFs, in which each S&P 500 company accounts for roughly the same portion of the fund. Recently, these have grown in popularity.
In December and heading into the new year, I believe investing in a standard, market-cap-weighted S&P 500 ETF is a good choice because its largest positions are some of the world's top companies and have a lot of momentum behind them.
Considering the growth opportunities in areas like artificial intelligence (AI), cloud computing, cybersecurity, semiconductors, and electric vehicles, this ETF's top holdings (almost 35% of the ETF) have an opportunity to continue the impressive run we've seen recently from mega-cap stocks.
Why the Vanguard S&P 500 and not another ETF?
Aside from the Vanguard S&P 500, there are a couple of popular S&P 500 ETFs like the SPDR S&P 500 ETF Trust and the iShares Core S&P 500 ETF . Each of these mirrors the S&P 500, so there's no tangible difference between them besides the costs. The Vanguard S&P 500 ETF and iShares CORE S&P 500 ETF have expense ratios of 0.03%, but the SPDR S&P 500 ETF Trust's expense ratio is more than three times higher at 0.0945%.
How much of a difference can that relatively small amount in fees make? Let's imagine you invest $500 monthly into the three ETFs and average 10% annual returns over 25 years. With the Vanguard and iShares ETF, you would've paid around $2,600 in fees over that time. With the SPDR ETF, you would've paid around $8,300.
If you're wondering why I chose the Vanguard ETF over the iShares ETF, the answer is that the Vanguard ETF is more actively traded. This makes it easier to buy and sell shares without price swings.
Slow and steady wins the race
Regardless of which S&P 500 ETF you choose, a great approach would be to dollar-cost average. When you do this, you decide how much you can invest in the S&P 500 and then establish an investing schedule that you stick to no matter what the prices are at the time. For example, if you decide you can invest $300 monthly into an S&P 500 ETF, you could invest $75 every Monday, $150 every other Friday, $300 at the start of each month, or whatever makes the most sense for your personal situation.
The frequency of your investments isn't as important as sticking to your schedule. Consistent investments in the S&P 500 have proven to be one of the surest ways to build wealth over the long haul.
Before you buy stock in Vanguard S&P 500 ETF, consider this: