The Smartest Vanguard ETF to Buy With $500 Right Now

There is an old saying that the first step is the hardest, and that is certainly true when it comes to investing. Like many people, you may be looking for the best moment to invest; after all, no one wants to look at their investments a week or month later and see that they are down. As such, with the stock market near all-time highs and talk of stocks being overvalued, you could be reluctant to begin investing now, with the fear that you may be buying stocks at the top of the market.

The truth of the matter, though, is that there is rarely an ideal time to invest. Sure, it's possible to invest after a market dip and before a rally, but that type of timing is rare, even for the most seasoned investors. Meanwhile, bull markets tend to last a long time, and a J.P. Morgan study found that the S&P 500 actually hits all-time highs on about 7% of trading days, and on a third of those occasions, it never trades lower.

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If you're worried that the market is overvalued, I also wouldn't be too concerned. Most of the metrics being used as evidence that the market is overvalued are backward-looking, not forward-looking, and right now, we're in one of the biggest technological shifts of our generation, with artificial intelligence (AI) driving rapid growth.

Based on 2026 earnings estimates, many of the largest companies in the world, such as Nvidia, Alphabet, and Amazon, are arguably quite attractively valued based on their growth rates. The market makeup has also greatly shifted over the years, with tech stocks making up a much greater percentage than in the past, versus when low-growth financials and cyclical industrials ruled the day. These stocks generally just have better growth and business models and deserve higher valuations.

What history has shown, however, is that the sooner you start investing, the better. Gains compound over time, so the sooner you start and the longer you hold your investments, the greater they become. Five-hundred dollars is a great starting point, but it's just a starting point. To build long-term wealth, you're going to want to consistently invest $500 each and every month. This is called dollar-cost averaging, and it will also help remove any worry about investing at the wrong time, because you'll be consistently investing regardless of whether the market is up or down, helping smooth out your long-term returns.

As for the best place to start investing, I think an exchange-traded fund (ETF) like the Vanguard S&P 500 ETF (NYSEMKT: VOO) is the best place to start.

A great core holding

In my view, the Vanguard S&P 500 ETF is an investment that can be at the core of most investors' portfolios. It's a low-cost fund with a minuscule expense ratio of just 0.03% that tracks the performance of the S&P 500 index. The S&P consists of the 500 largest publicly traded U.S. companies and is widely considered the barometer of the U.S. stock market.

The S&P 500 is a market capitalization (market cap) weighted index, which means the larger a company is by market cap (share price multiplied by shares outstanding), the greater the percentage of the index it becomes. By letting its winners run, the index has been hard to beat. In fact, only about 14% of actively managed funds have been able to outperform the S&P over the past 10 years.

The Vanguard S&P 500 ETF has been a great performer. It has an average annual return of nearly 14.8% over the past decade, and it's been even stronger the past three years, with an average yearly gain of nearly 23%. Invest $500 a month with a 15% annual return over 30 years, and you'll have around $2.8 million at the end of that period.

JPMorgan Chase is an advertising partner of Motley Fool Money. Geoffrey Seiler has positions in Alphabet, Amazon, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, JPMorgan Chase, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.