Keep It Simple: Buy American With Vanguard 500 Index ETF

The geopolitical events of the past year or so, coupled with tariff uncertainties, have changed the investment equation in a big way. Many investors may be thinking about "onshoring" their investments by buying American.

If that's your goal, the easiest way to do it is actually to buy an investment that you hear about all day long in the financial press: the S&P 500 (SNPINDEX: ^GSPC). And one of the best options for doing this is the Vanguard 500 Index ETF (NYSEMKT: VOO). Here's why on both fronts.

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What does the S&P 500 index do?

If you are trying to stick with American companies, the best option is probably to research every single company you are looking at. There are different ways to think about this, though. Is the company headquartered in the United States? Does it generate most of its income from the United States? Does it generate most of its earnings from the United States? There's nuance here that gets a little complex.

Image source: Getty Images.

Coca-Cola (NYSE: KO), for example, is most definitely an American company, but it generates material revenues and profits from its non-U.S. operations.

If you don't want to try to get into the weeds with each company, you need to find a compromise solution. The S&P 500 is a great option. The key is that, while most investors look at the S&P 500 as a market-tracking tool, that isn't really the goal.

The 500 or so stocks included in the index are selected by a committee to be representative of the U.S. economy. All the stocks that get included have to be listed on a U.S. exchange. The market cap-weighting methodology means that the largest companies will have the greatest impact on performance, but it also likely means that there will be material exposure to companies that operate on a global scale. However, those companies will still be U.S.-listed companies, which means they are American companies.

One simple investment is hard to beat if you are trying to buy American, even if it means making some minor concessions. For example, Coca-Cola has long been a proud member of the S&P 500 index.

What's the best way to buy the S&P 500 index?

The one big problem with buying the S&P 500 index right now is that it is trading near all-time highs, despite the uncertainty in the world today. But, as the chart highlights, long-term investors have ended up winning, even if they bought the S&P 500 index before a deep downturn. Notice that the bear market at the turn of the century (the dot-com crash), the Great Recession bear market, and the bear market around the coronavirus pandemic have all been mere dips on a steady upward climb.

SPY data by YCharts

That chart is of the SPDR S&P 500 ETF (NYSEMKT: SPY). That was the first exchange-traded fund ever created. But it is not the only ETF that tracks the S&P 500 index today. A better choice is the Vanguard 500 Index ETF. They both do the exact same thing: track the S&P 500 index. The only difference is their expense ratios.

SPY data by YCharts

The SPDR S&P 500 ETF's expense ratio is 0.09%, while the Vanguard 500 Index ETF's expense ratio is 0.03%. Since they both do the same exact thing, you should probably go with the cheaper alternative, unless you think it is worth paying more so you can say you own the first ETF ever created.

If you decide to buy either of these ETFs, though, make sure you buy and hold for the long term. Reinvesting dividends is also an excellent idea.

Keep your investment life simple -- buy the all-American S&P 500

The truth is that you can make your investment life as complicated or as easy as you want to. If easy is your preference, as it probably should be, buying the Vanguard 500 Index ETF provides you two solutions in one.

First, you are getting a broad-based index that is generally seen as the go-to market barometer. Second, you are buying an index that is American by design. And with the tiny 0.03% expense ratio, you are getting both on the cheap. Easy and cheap is hard to beat.

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Reuben Gregg Brewer 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.