Should You Buy the Vanguard S&P 500 ETF With the Stock Market at All-Time Highs? History Offers a Clear Answer

The S&P 500 is a stock market index made up of 500 companies from 11 different sectors of the economy. It's currently trading at a record high thanks to a year-to-date gain of 17%, which is far better than its average annual return of 10.5% since it was established in 1957.

Accelerated returns have been common over the last few years, as powerful tech trends like artificial intelligence (AI) create significant amounts of value for some of the largest companies in the index.

The Vanguard S&P 500 ETF (NYSEMKT: VOO) is an exchange-traded fund (ETF) that tracks the performance of the S&P 500 by investing in the same stocks and maintaining similar weightings. Should investors buy it with the index at an all-time high? History offers a clear answer.

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A cost-effective, diversified index fund

The S&P 500 is weighted by market capitalization, so its largest holdings have a greater influence over its performance than the smallest. Therefore, information technology is the largest sector in the index by far because it's home to the world's three largest companies, Nvidia, Microsoft, and Apple, which have a combined value of $12.9 trillion.

Below is a list of the top five sectors in the S&P 500, along with their portfolio weightings, and some of the noteworthy stocks within them.

Data source: State Street. Sector weightings are accurate as of Oct. 27, 2025, and are subject to change.

The remaining six sectors in the S&P 500 are industrials, consumer staples, energy, utilities, real estate, and materials, so the index is clearly quite diversified. However, it's impossible to ignore the outsized influence of the tech industry.

Below is a chart showing the performance of the S&P 500 information technology sector since Jan. 1, 2023 (which is when the AI boom started gathering momentum), compared to the performance of the S&P 500 overall, and the performance of the S&P 500 excluding the information technology sector. As you can see, returns would have been significantly lower without technology stocks.

^SPXIFTS data by YCharts

Tech is likely to continue fueling returns for the foreseeable future, because AI is slated to create trillions of dollars in value over the next few years. Nvidia CEO Jensen Huang believes data center operators will spend up to $4 trillion upgrading their infrastructure to meet demand from AI developers by 2030. On the software side, Cathie Wood's Ark Invest thinks AI will create a $13 trillion opportunity over the same period.

With the Vanguard S&P 500 ETF, investors get substantial exposure to that value, with a healthy splash of diversification. Plus, this fund is incredibly cost-effective -- with an expense ratio of 0.03%, an investment of $10,000 would incur an annual fee of just $3.

History suggests there's never a bad time to invest

Past performance isn't a reliable indicator of future results, but the S&P 500 typically trends higher over the long term. As I mentioned earlier, the index has delivered a compound annual return of 10.5% since its inception in 1957, even after accounting for every sell-off, correction, and bear market along the way.

Speaking of which, volatility is a normal part of the investing journey. According to Capital Group, the S&P 500 experiences a decline of at least 5% once per year, on average. Declines of 10% are less common, but they typically come around once every two-and-a-half years.

A bear market, which is defined by a peak-to-trough decline of 20%, tends to occur once every six years or so. The last one was in 2022, so unless there is an unexpected economic shock or a recession, history suggests the current bull run in the S&P 500 still has legs.

In summary, there isn't a bad time to invest. However, it's worth pointing out that the S&P 500 is unquestionably expensive right now, which could lead to a period of below-average performance. This probably won't be a concern for long-term investors with a time horizon of five years or more, but it might pay to be strategic.

Rather than taking a full position in the Vanguard S&P 500 ETF today, starting with a smaller investment and adding to it consistently over time might be a better play. That way, if elevated valuations do trigger a correction, investors will scoop up some shares of the ETF at much lower prices, which will reduce their overall cost basis.

JPMorgan Chase is an advertising partner of Motley Fool Money. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Home Depot, Intuitive Surgical, JPMorgan Chase, Meta Platforms, Microsoft, Netflix, Nvidia, Tesla, Vanguard S&P 500 ETF, and Visa. The Motley Fool recommends Johnson & Johnson 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.