A Smart Way to Invest $1,000 Right Now

Putting $1,000 to work in today's market might not be as straightforward as it sounds. Many of the world's largest companies already trade at premium valuations, while many others promise to become the next big winner. Either way, it's easy to feel like you're one pick away from getting it all wrong.

That's why one of the smartest ways to invest $1,000 right now might be not choosing a single company at all. Instead, you can start with the Vanguard S&P 500 ETF (NYSEMKT: VOO).

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VOO: Diversification with lower fees

Rather than investing in one business, VOO gives investors broad exposure to the S&P 500 index, a collection of 500 of the biggest publicly traded companies in the U.S.

The exchange-traded fund (ETF) is designed to closely track the S&P 500 while charging an expense ratio of just 0.03%, which makes it one of the lowest-cost ways to invest in large-cap U.S. stocks.

Instead of trying to outperform the market, VOO aims to match it. It uses a full-replication strategy, meaning it holds the same companies in roughly the same market-cap weights as the index.

The payoff is simple: exposure to America's largest publicly traded companies through a single investment. You get instant diversification without paying high fees.

VOO gives investors strong artificial intelligence exposure

Many investors also want to know whether buying VOO still gives them meaningful exposure to the biggest artificial intelligence winners. It can.

Because the S&P 500 is weighted by market capitalization, the largest companies naturally have the greatest influence on the index. Since VOO is built to mirror those holdings, the same dynamic applies to the ETF.

That means companies like Nvidia, Apple, Microsoft, Amazon, and Alphabet can account for a larger share of the portfolio. As a result, their performance tends to matter more to the fund than the performance of smaller positions.

Why index-tracking funds like VOO are the way to go

Here's another point in VOO's favor: Historically, index funds have beaten most actively managed funds over the long term.

According to S&P Global's S&P Indexes Versus Active (SPIVA) scorecard, almost 90% of actively managed U.S. funds underperformed the S&P 500 over the last 15 years.

No strategy guarantees market-beating returns -- and many professional strategies are designed for preserving wealth, not necessarily growing it. Still, the data says that consistently matching the major indexes has been a more reliable approach than trying to pick the right managers or the right stocks year after year. That's exactly what VOO is designed to do.

Of course, VOO's returns won't perfectly match the S&P 500's. The expense ratio and small tracking differences can create a gap.

However, those differences are typically small and rarely exceed 1%. For long-term investors, that can be a reasonable trade-off for broad diversification, low costs, and built-in exposure to market leaders.

There's also a quiet advantage to the index itself. You don't have to guess which company will dominate the next decade. Businesses that grow in value naturally rise toward the top of the index, while weaker performers tend to fade in importance or leave the index over time.

The bottom line is that investors can benefit from shifting market leadership without constantly buying and selling individual stocks.

Is VOO one of the smartest ways to invest $1,000 right now?

Like any stock fund, VOO isn't immune to downturns. It tracks the S&P 500, so you should expect volatility from time to time, as you would in the broader U.S. market.

But if your goal is putting $1,000 to work without trying to predict tomorrow's biggest winner, VOO offers a strong alternative. It provides diversified exposure to hundreds of America's largest businesses through one low-cost investment.

If "smartest ways to invest $1,000 right now" means keeping things simple, diversified, and investor-friendly, VOO checks a lot of the boxes.

Rick Orford has positions in Alphabet, Amazon, Apple, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, Nvidia, S&P Global, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.