Should You Forget Stock Picking and Just Buy This ETF Instead?

The latest SPIVA study for 2025 showed that 79% of actively managed large-cap U.S. equity funds underperformed the S&P 500 (SNPINDEX: ^GSPC). This continues a decades-long trend of active managers largely failing to keep up with the index with any consistency.

And these are professionals, too. These aren't retail folks without nearly the same information access. The lack of consistent success and high fees make it questionable whether or not the pros are adding appropriate value for the cost.

Image source: Getty Images.

But if you're someone who's also buying and selling stocks, trying to pick individual winners, you're likely to run into the same problems. The biggest issue investors often face with their portfolios is that they mess with them too much -- selling after stocks have gone down and sitting on the sidelines after they've rebounded.

In many cases, it's easier to just buy the index and be done with it. Take the stock picking and high fees right out of the equation. Don't try to beat the S&P 500. Try to match it.

That's one of the biggest reasons the Vanguard S&P 500 ETF (NYSEMKT: VOO) has become the largest ETF in the world and just passed the $1 trillion mark in assets under management (AUM).

Source: Vanguard.

Why the Vanguard S&P 500 ETF works for most investors

As most people already know, the Vanguard S&P 500 ETF invests in 500 of the largest U.S. stocks. With an expense ratio of just 0.03%, it's one of the cheapest ETFs in the entire marketplace. That means investors keep almost all of the portfolio's returns, rather than seeing a significant portion go to a money manager.

That makes it ideal for a long-term core portfolio holding.

But it's impossible to look at the S&P 500 and ignore that large tech stock allocation. That's worked heavily in the fund's favor over the past decade and longer. But there comes a point when that high-tech allocation becomes a danger.

With the Federal Reserve holding interest rates steady in June and indicating that a hike later this year is on the table, high-multiple growth stocks could be at some risk. Tech is already 39% of the portfolio, with most of that concentration in the top 10 holdings. And when SpaceX, Anthropic, and OpenAI likely get added to the index over the next year or two, that percentage will probably increase.

But the biggest benefit of investing in the S&P 500 is that it roughly reflects the current state of the U.S. economy. Concentration issues aside, it's clear that technological innovation and artificial intelligence (AI) are the economy's biggest growth engines at the moment. The S&P 500 reflects that and remains the simplest way to invest in it.

If you're a long-term investor, consider investing in the Vanguard S&P 500 ETF and letting the index do the work for you.

David Dierking has positions in Apple. The Motley Fool has positions in and recommends Alphabet, Apple, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.