Should You Buy VOO While the Market Is Near All-Time Highs?

The Vanguard S&P 500 ETF (NYSEMKT: VOO) is the largest ETF in the world and recently became the first ETF to pass $1 trillion in assets. VOO assets have skyrocketed in the last three years, coinciding with the concurrent S&P 500 bull market. Over the past three years, VOO has accumulated some $386 billion in net assets, more than one-third of its total assets.

In the past month alone, VOO has gathered roughly $50 billion in net assets, as investors have piled in during the recent stock market surge. Since April 1, the S&P 500 has increased about 17% and is now at 7,430 -- just two weeks removed from its all-time high of 7,620 on June 2.

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The last time VOO had significant net outflows was in March 2026, coinciding with the war in Iran and the subsequent S&P 500 decline. Now that the S&P 500 has erased those losses and hit an all-time high, should investors be concerned about another pullback?

The short answer is yes.

The Shiller CAPE ratio is historically high

Not only is the war still dragging on, but inflation is rising, consumer confidence is low, the job market is mixed, and uncertainty is high, as are interest rates. The conditions are not that different from those during the first-quarter market slowdown.

The difference now is that valuations are sky-high. The Shiller P/E ratio, also called the cyclically adjusted price-to-earnings, or CAPE ratio, is at 41, the highest it has been since the dotcom boom in 1999. It is even higher now than it was in October 2021 before the 2022 bear market.

This should be a red flag for investors. While every market is different, in both recent instances when the CAPE ratio reached this level, a correction or bear market followed. That's not to say it's going to happen again in 2026, but investors should be prepared.

While VOO or an equivalent S&P 500 ETF should be a staple in every portfolio, should investors pile in with more assets now? A better idea might be to diversify into ETFs that tend to perform well in market downturns, like dividend ETFs.

One great option right now is the WisdomTree U.S. High Dividend ETF (NYSEMKT: DHS), which tracks a proprietary index of stocks that are expected to pay the highest dividends.

The Wisdom Tree U.S. High Dividend ETF gained 8% in 2022, a year when the bear market took a 19% bite out of the S&P 500.

The WisdomTree ETF is up 13% year to date, which beats the S&P 500. This might be a good time to hold off on the VOO and add some shares of DHS or a similar dividend ETF.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.