Is Vanguard S&P 500 ETF the Smartest Investment You Can Make Today?

Investing should be something that you do for the long term. That is important because investors usually take a very short-term view of things. The S&P 500 index (SNPINDEX: ^GSPC) is a conundrum right now because of the difference between the short- and the long-term opportunities it presents.

Here's why the Vanguard S&P 500 ETF (NYSEMKT: VOO) could be a smart investment to make today and one alternative S&P 500 exchange-traded fund (ETF) that might be even smarter.

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What does the S&P 500 index do?

The Vanguard S&P 500 ETF only tracks the S&P 500 index, so the real question when examining the ETF is what does the index do? In this case, the goal is for the index to track the broader U.S. economy.

The list of companies in the index is hand-selected by a committee to be representative of the U.S. economy. The companies are generally large and economically important. The stocks included are weighted by market cap, so the largest companies have the biggest impact on the index's performance. That makes complete sense since that is pretty much how the economy works, too.

^SPX data by YCharts

What's notable here is that over time, the S&P 500 index has grown in value. Not every year, since there have been bull and bear markets along the way. But every pullback in the index has been followed by a return to growth, pushing the price to ever higher highs over the long term. In other words, buying the S&P 500 index, or an ETF that tracks it, has turned out to be a winning choice no matter when you buy it.

Vanguard S&P 500 ETF is a solid option for buying the index. There are two basic reasons for this. First, like many other ETFs, it tracks the index. Second, it is one of the cheapest options, with an expense ratio of just 0.03%. That's as close to free as you are likely to find on Wall Street.

The problem with the S&P 500 index today

Saying "buy at any price" is, understandably, a tough pill to swallow for a lot of investors no matter what history shows. Indeed, there are clearly better and worse times to buy the S&P 500 index. Buying now, with the index near all-time highs, could very easily leave you with paper losses for a spell if there's a bear market. And on that score, it is important to note that market cap weighting tends to leave the S&P 500 index exposed to the sectors most likely to feel the pinch in a downturn (since they are the ones that have probably risen most in the upturn).

For example, technology stocks are driving the market higher right now. There are signs that the sector could be getting overheated, noting that it currently makes up a huge 33% of Vanguard S&P 500 ETF's portfolio. The next closest sector exposure, financials, isn't even half that figure at roughly 14% of assets. If the tech sector gets routed, the S&P 500 index is going to get hit pretty hard.

There is an alternative exchange-traded fund to consider that will still allow you to buy the S&P 500 index. Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP) doesn't use market cap weighting. It owns all of the same stocks as Vanguard S&P 500 ETF but it weights them, as the name implies, equally. Technology makes up roughly 14% of the ETF's assets and that is the third-largest exposure, following industrials at about 16% and financials at 15%. If there's a technology meltdown, Invesco S&P 500 Equal Weight ETF will save you some of the pain while still allowing you to own "the market."

The one drawback here is that Invesco S&P 500 Equal Weight ETF's expense ratio is a bit high at 0.2%. However, over the long term, it has performed fairly well. It has only fallen notably behind the market cap weighted index in recent years as technology has become the main driver of the index's performance. But that's exactly why it might be smart to buy Invesco S&P 500 Equal Weight ETF in the first place.

Two smart long-term options

The most important thing for an investor to do is to get started. The next most important thing is to keep at it. In fact, your ability to save money and stick to an investment plan is likely to be more important than the investment you pick and when.

Which is exactly why buying Vanguard S&P 500 ETF today could be a smart choice. Of course, if you are worried about the lofty level of the market and the S&P's high exposure to tech stocks today, a smart choice would be to invest anyway, but perhaps consider the Invesco S&P 500 Equal Weight ETF.

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.