Vanguard S&P 500 ETF Long-Term Outlook: What Historical Trends Suggest for Patient Investors

Over its decades-long history, the S&P 500 (SNPINDEX: ^GSPC) has returned roughly 10% annually with dividends reinvested. If you're looking for a baseline expectation for what stocks could return over the long-term future, this is probably a good place to start.

But that number doesn't tell you anything about the path it will take to get there.

Over the past century, we've had the Great Depression, the stagflation/energy crisis of the 1970s, Black Monday 1987, the tech bubble, the financial crisis, and the COVID-19 pandemic. Yet despite these deep and painful bear markets, the S&P 500 still returned 10% per year overall.

That's a market that favors long-term patient investors. But it's also one that requires an understanding of what really drives share prices over time.

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This is the biggest driver in the long term

Over shorter time frames, almost anything can move stock prices higher or lower. Inflation reports, jobs reports, Fed policy updates, or unexpected geopolitical events can all impact returns.

But over the longer term, corporate earnings become the biggest driver. A company that continues to grow its revenue, earnings, and cash flows will likely see its stock price trend higher over time despite the volatility it experiences along the way.

Right now, we're in a period where corporate earnings are growing strongly. Third-quarter earnings for the S&P 500 are currently on pace to grow 29% year over year. That's due, of course, to the artificial intelligence (AI) boom. This earnings acceleration is largely what's helping the S&P 500 stay at or near all-time highs even though inflation is still running well above 3%, oil prices are above $100 a barrel, and long-term interest rates recently hit multidecade highs.

That kind of earnings growth rate is unsustainable in the long term and could see U.S. stocks experience below-average returns over the next several years. But the long-term outlook for the U.S. economy is still positive.

What VOO investors should do now

The Vanguard S&P 500 ETF (NYSEMKT: VOO) is one of the best long-term investments to own because of its broad coverage of the U.S. economy and minimal expense ratio.

I'd emphasize the phrase "long-term" because trying to predict what the market will do in the near term is usually a fruitless effort. Investors willing to buy and hold for 10 years or longer can ride out the market's highs and lows and position themselves for the best chance of long-term success.

The S&P 500 has a long history of generating strong returns for investors. Who knows what the next 100 years will look like, but the odds are very good that the Vanguard S&P 500 ETF is going to keep generating solid total returns for anyone willing to hold on long-term and avoid the temptation to sell when the market drops.

David Dierking 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.