2 No-Brainer Vanguard Index Funds to Buy With $1,500 Right Now

Index funds let investors spread money across dozens or even hundreds of companies, which mitigates the risk associated with highly concentrated portfolios. But index funds also come in different shapes in sizes, and it would be wrong to assume they are inherently good investments simply because they provide diversification.

For instance, several index funds focused on artificial intelligence (AI) underperformed the S&P 500 (SNPINDEX: ^GSPC) last year despite booming interest in AI stocks. In fact, the First Trust Nasdaq AI and Robotics ETF actually declined 1% in 2024, even as the S&P 500 advanced 23%. So, investors must be choosy.

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With that in mind, the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the Vanguard FTSE Europe ETF (NYSEMKT: VGK) are smart places to put money right now. Investors with $1,500 could split the money 75/25 by purchasing two shares of the former and five shares of the latter.

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1. Vanguard S&P 500 ETF

The Vanguard S&P 500 ETF measures the performance of the S&P 500, an index that includes 500 large U.S. companies that span all 11 market sectors. The S&P 500 is commonly regarded as the best gauge for the U.S. stock market. Funds that track the index let investors spread money across the most influential American businesses. The top five holdings in the Vanguard S&P 500 ETF are listed by weight below:

1. Apple: 6.7%
2. Microsoft: 6.2%
3. Nvidia: 5.6%
4. Amazon: 3.6%
5. Alphabet: 3.5%

S&P 500 index funds have historically been surefire investments when held long enough. For instance, the benchmark index generated a positive return over every rolling 11-year period during the last three decades. And anyone who held an S&P 500 index fund for the whole period would have seen their investment increase nearly 20 times in value, which equates to an annual return of 10.4%.

Importantly, the S&P 500 has also outperformed most other asset classes during the last five, 10, and 20 years. That includes European, Asian, and emerging market equities, as well as fixed income, real estate, and precious metals, according to data from Morgan Stanley. That makes the Vanguard S&P 500 ETF a very compelling option for most investors.

That is especially true given its cheap expense ratio of 0.03%, which means investors will pay just $3 annually on every $10,000 invested in the fund. The only secret is patience. Over the last decade, the S&P 500 suffered an average intra-year drawdown of 13%, meaning it typically fell sharply at some point during the middle of each year.

However, not only did the index recover from every single drawdown, but it also returned 235% over the last decade despite those regular pullbacks. Investors who kept their money in an S&P 500 index fund rather than panic selling when the stock market tumbled were well-rewarded for their patience.

2. Vanguard FTSE Europe ETF

The Vanguard FTSE Europe ETF measures the performance of more than 1,200 European companies. The index fund is most weighted toward companies in the United Kingdom (23%), France (15%), and Germany (14%), the three largest economies in Europe. The top five holdings are listed by weight below:

1. SAP: 2.4%
2. Nestlé: 2.1%
3. ASML Holdings: 1.9%
4. Novartis: 1.6%
5. Roche: 1.6%

The European Central Bank has cut its key interest rate seven times in the past year, a trend likely to continue in the coming months. Deutsche Bank economist Mark Wall expects another cut in June and thinks the key rate will drop 75 basis points by year-end. Also, negotiations with the Trump administration could result in trade deals that reduce tariff-related headwinds.

Analysts currently expect Stoxx 600 companies (a European benchmark similar to the S&P 500) to report 1.9% earnings growth in 2025, a severe downward revision from the 5.8% earnings growth anticipated before President Donald Trump announced his "Liberation Day" tariffs. However, the economic uplift from lower interest rates and trade deals could lead to faster earnings growth than analysts expect.

Here's the bottom line: The FTSE Europe ETF is Vanguard's top-performing index fund year to date, and that may continue in the remaining months of 2025 as economic tailwinds converge. Importantly, the FTSE Europe ETF is a particularly good choice for investors who want diversification beyond U.S. equities. The expense ratio is a reasonable 0.06%, much cheaper than the average fee on similar funds from other asset managers.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Amazon, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends ASML, Alphabet, Amazon, Apple, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool recommends Nestlé and Roche Holding AG and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.