Should You Buy the Vanguard S&P 500 ETF As the Market Hits New Highs?

The market is starting to really heat up. The S&P 500 is up more thn 11% year to date, and it just celebrated the first hot initial public offering (IPO) of the year, Cerebras Systems. It's now gearing up for what is slated to be the largest IPO ever, with SpaceX coming out in less than two weeks, followed by Anthropic, which recently filed to go public, and OpenAI, which may happen shortly after.

It's an exciting time to be in the markets, but investors should tread carefully. With the market at new highs, is it a good time to invest in the Vanguard S&P 500 Exchange-Traded Fund (ETF) (NYSEMKT: VOO)?

Buy at the high?

The S&P 500 isn't just reaching new highs all the time. It's also extremely expensive. The cyclical adjusted P/E ratio, or CAPE ratio, is close to 40, or near the second highest levels ever. The previous high was just before the dot-com crash in 2000, which was followed by three years of losses for the S&P 500.

Image source: Getty Images.

Right now, the investing community is excited about opportunities in artificial intelligence (AI), and investors are scooping up shares of AI-related companies, including hyperscalers, data center companies, and AI-adjacent companies, and they're sporting increasingly rich valuations.

Why does this matter? When stocks get expensive, they may be primed for a correction. Investing is all about buying low and selling high, so in general, investors should avoid stocks trading at an unreasonable premium.

Consistency is key

Investing is actually more than buying low and selling high. Consistent investing in any market is the key to investing success, for the simple reason that you can't time the market. In hindsight, you can see when the peaks and troughs were and lament missing them, but in foresight, you can only make educated guesses. If you invest throughout all kinds of markets and hold on for the long term, you have the best chance of benefiting from market rebounds; you don't have to time the market, because your funds are already in it.

For many investors, owning a group of ETFs that track the S&P 500 or another index allows you to benefit from market gains while minimizing risk and simplifying investing. The Vanguard ETF is the classic index ETF. It's the largest ETF of any kind, with $1.6 trillion in assets, and it has a low expense ratio of 0.03%. That means you keep more of the gains for yourself.

It also provides you with exposure to the best AI companies, so you can enjoy gains in times like this, but it keeps you diversified in safe stocks and all kinds of industries. In fact, if SpaceX and Anthropic launch on the market with their expected trillion-dollar valuations, they will probably head straight into the S&P 500, and you'll own them as part of your ETF basket.

So yes, you can definitely feel comfortable investing in the Vanguard S&P 500 ETF today, as long as you continue to invest, have a long-term horizon, and plan to hold through ups and downs.

Jennifer Saibil has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.