The Fed Meets in Two Weeks. Here's the ETF I'd Buy Today Regardless of What It Does.

For the first time in recent memory, the market doesn't have much of an idea of what the Federal Reserve will do with interest rates at its September meeting. We're less than two weeks away from the Fed's decision, and investors aren't sure whether to expect a rate hike for the first time since 2023 or if the Fed will hold rates steady.

According to the CME FedWatch tool, which monitors how the market is pricing future interest rate movements, there's roughly a 40% chance that rates won't move and a 60% chance of a rate hike. Roughly half of the voting committee favors a hike, and Chair Kevin Warsh didn't offer any forward guidance at Jackson Hole last week. In short, there is considerable uncertainty.

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Because of this uncertainty, many investors feel it's time to pump the brakes on investing or do something different with new money. But there are some investments that make sense for long-term investors regardless of what the stock market is doing, or how much economic uncertainty there is. One of them is the Vanguard S&P 500 ETF (NYSEMKT:VOO).

What is the Vanguard S&P 500 ETF?

The Vanguard S&P 500 ETF is an exchange-traded fund that is designed to track the performance of the S&P 500 index over time, net of fees. It owns all 500 stocks in the index, using the same weights as the index does, to replicate its performance.

It is a very low-cost way to get exposure to the index that most experts consider the best barometer of how U.S. businesses are doing. Its 0.03% expense ratio means your total investment fees will be $3 annually per $10,000 in assets. Note: This isn't a fee you have to pay. It will simply be reflected in the fund's performance. But it's so small that the performance of the ETF and the S&P 500 index itself should be virtually identical.

Why buy no matter what?

Here's the reality. Buying the S&P 500 at any point between 1988 and 2023 produced a 11.9% average total return for investors over the next 12 months. Of course, some 12-month periods saw much higher returns while others saw negative performance, but overall, the S&P 500 has been a great wealth builder for long-term investors regardless of when the "buy" button was pushed.

Just to put that into perspective, consider that 11.9% total returns would turn a $1,000 investment into nearly $9,500 after 20 years. Now imagine investing $1,000 every month and letting that compounding magic do the work.

One of the biggest pushbacks I get when suggesting the S&P 500 right now is "Sure, but the S&P 500 is near an all-time high. It can't be a good time to buy."

It's true that we're very close to an all-time high in the S&P 500. But you might be surprised to learn that during the same 1998 to 2023 window, buying the S&P 500 at an all-time high produced a 13.4% average return over the following 12 months. In other words, history shows that a market reaching an all-time high is often a good indicator that it's ready to go even higher.

Of course, past performance is no guarantee of future returns. It's important to emphasize that the stock market doesn't always go up. There's no way to know whether the S&P 500 will be higher or lower in 12 months from now. So, it's generally not a great idea to put any money into this ETF (or into the stock market at all) that you'll need within the next few years. But over the long term, the math is undeniable.

Matt Frankel, CFP® has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.