3 Reasons the Vanguard S&P 500 ETF Could Be Worth Holding for the Next 20 Years

Predicting what will happen a week, a month, or a year from now is next to impossible. So many factors can change with little warning, so conditions from before can look nothing like they do now.

That's why buying and holding for the long term is such an effective strategy. You don't have to try to pick today's winners or the future's next big trends. Owning a fund like the Vanguard S&P 500 ETF (NYSEMKT: VOO) that covers the biggest and most successful U.S. companies gives you broad exposure to the U.S. economic growth engine.

But just because it's a diversified basket of U.S. large caps isn't the only reason to hold it long-term. Here are four other just-as-important reasons.

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The S&P 500 has a built-in momentum strategy

The Vanguard S&P 500 ETF is far from just a stagnant portfolio of stocks that rarely changes. Sure, most of the index's components carry over from year to year. But there's a lot more happening to it than you might think.

For example, there have been roughly 800 constituent changes to the index since 1995, roughly 27 per year. But about 70% of those have been due to corporate events, such as mergers or acquisitions. The rest occur for other reasons, such as its market cap, liquidity, or profitability. Since the index members are selected by a committee rather than by an automated set of strict inclusion criteria, it can be difficult to predict who stays and who goes.

The net effect of this, however, is that smaller, perhaps less successful companies are dropped while larger, growing companies are added. This is effectively a momentum strategy. The index's market cap weighting also has this effect. Companies whose stock prices have risen get larger weightings in the index and vice versa.

Inflation can drive earnings growth, not just be a downside catalyst

Inflation has the reputation of being a negative factor for stocks. Over longer periods, that's usually true. But as we've seen over the past year, it doesn't necessarily prevent the S&P 500 (SNPINDEX: ^GSPC) from setting new all-time highs.

In the short term, inflation can put pressure on profit margins, push interest rates higher, and impact the valuations that investors are willing to pay for stocks. 2022 provides a good example of how that can play out during high inflation and slowing growth periods.

But corporate earnings also factor into how the S&P 500 reacts. For Q3 2026, S&P 500 earnings are expected to grow nearly 30% year-over-year. Since corporate earnings are the biggest driver of stock prices over time, we're currently seeing a scenario where rising profits are outweighing the negative effects of inflation. As a result, the S&P 500 has consistently remained within a few percentage points of its all-time high for some time.

And over the course of decades, those impacts can start to balance themselves out. Companies with pricing power can pass higher costs on to customers, which can contribute to nominal revenue and earnings growth.

The S&P 500 has a perfect track record over 20 years

The biggest benefit of buy-and-hold investing is that it gives you the opportunity to ride out short-term volatility in order to pursue potentially higher long-term capital growth. That's not just lip service either. It's backed by nearly 100 years of return data.

Consider these nuggets from iShares: "From 1936 through 2025, the U.S. stock market never had negative returns on a rolling 20-year basis. And since 1972, the S&P 500 hasn't had negative returns on any rolling timeframe longer than 12 years."

And that includes every bear market, recession, and generational catastrophe that's occurred over the past 90 years. Stocks have a perfect historical record of producing gains if you just hold on long enough.

Of course, that's not an indication of what the Vanguard S&P 500 ETF will do over the next 20 years, but it's got some strong history working in its favor.

The fund has all of the traditional boxes checked for what you'd want in an ETF: diversification, an ultra-low expense ratio, and high liquidity. On top of that fundamental quality, these additional reasons strengthen its investment case.

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.