Is the Vanguard 500 Index Fund ETF a Buy Now?

The S&P 500 (SNPINDEX: ^GSPC) has become the most-followed index on the stock market, surpassing the Dow Jones Industrial Average. That's largely because of index funds that track the S&P 500, and because with 500 companies balanced on a market-cap basis, it gives a better sense of the entire U.S. stock market and the U.S. economy than the Dow Jones does with just 30 companies on a price-weighted basis.

S&P 500 index funds have become some of the most popular investments in the stock market, and one of the ways to get exposure to stocks. The Vanguard S&P 500 ETF (NYSEMKT: VOO) now has net assets of $1.41 trillion, which is close to 3% of the S&P 500's total market cap of $57 trillion.

While the Vanguard S&P 500 ETF is the largest S&P 500 index fund, the iShares Core S&P 500 ETF and the SPDR S&P 500 ETF have a combined net asset value of about $1.4 trillion.

So, is the Vanguard S&P 500 ETF a buy now? Let's take a look at why you may or may not want to buy the index fund.

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Why not to buy the S&P 500 ETF

The best argument not to buy the Vanguard S&P 500 ETF right now is growing concerns about a stock market bubble, especially in AI stocks, which make up a significant percentage of the S&P 500.

Despite a sharp sell-off earlier in the year, the S&P 500 is on its way to another double-digit percentage gain and is now well above its historical average in valuation with a price-to-earnings ratio of 28.4. That valuation seems to set the index up for a pullback at some point, as historically those levels have been unsustainable.

Additionally, there are concerns about a weakening job market, cracks in the credit market with rising auto loan delinquencies, and multiple bankruptcies in the auto sector. Meanwhile, inflation has been sticky and could reaccelerate due to tariffs.

You should also consider your own investing style before buying the Vanguard S&P 500 ETF. While it should be a good fit for most investors, you may want to consider an alternative like a small-cap ETF or a dividend ETF. If you already own a substantial amount of the "Magnificent Seven," then buying the Vanguard S&P 500 ETF may not give you the diversification you need.

Why you should buy the S&P 500 ETF

First, the Vanguard S&P 500 ETF is one of the cheapest ETFs available with an expense ratio of just 0.03%. That means investing $10,000 would cost you just $3 annually.

The ETF is also an attractive buy because of its track record, as it's returned an average of 9% annually with dividends reinvested. It's hard to beat those kinds of returns. Because the S&P 500 owns 500 of the top American companies, it's also hard to beat its performance, and most hedge funds struggle to do so.

Overall, buying the Vanguard S&P 500 ETF is a simple choice that has historically delivered good returns for investors.

Is the Vanguard S&P 500 ETF a buy?

For most long-term investors, buying shares of the Vanguard S&P 500 ETF should pay off.

However, considering the priciness and the risk of a crash in the market, taking advantage of dollar-cost averaging is a good idea. This is where you buy a little bit of a stock or ETF over time, which helps to even out the market's volatility and reduce the stress that comes with trying to time your purchases.

The Vanguard S&P 500 ETF is a buy, but investors will want to save some dry powder in case we do have a crash.

Jeremy Bowman 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.