Is VOO a good buy?

What is VOO ETF?

In the US stock market, the abbreviation VOO stands for the Vanguard S&P 500 ETF. This ETF is managed by Vanguard Equity Index Group and invests in stocks from the S&P 500 index, which includes the 500 biggest companies in the US. The aim of this ETF is to closely follow the index's performance, which is seen as a measure of the overall returns of US stocks.

Advantages of VOO

There are a few reasons why I choose VOO:

Low expense ratio - 0.03%

The expense ratio measures how much of the fund’s assets are used for administrative and other operating expenses. For every $1000 you invest, they only charge you $0.3 per year, which is fairly low compared to the industry (0.79%).

It is well-diversified.

This ETF includes 505 stocks with a median market cap of 189.6 billion. The portfolio composition includes all sectors of the industry, including Information Technology (where Apple, Tesla, and Google are), Health Care, Financials, and many other sectors. The top holdings of this ETF are occupied by well-known companies such as Apple, Microsoft, Amazon, Nvidia, and so on, which helps me to avoid the hassle of selecting individual stocks.

S&P 500 has a historical average yearly return of 7.7%, without including dividend reinvesting.

Don’t underestimate the compounding effect of the yearly return. Due to the dividend tax rate for nonresident aliens of the US, there would be a 30% deduction on dividends paid out by US companies. If not, the annualized return of the VOO is about 9.8% before the inflation adjustment.

Downside of VOO

Actually, there isn’t a critical downside for VOO. The only thing worth mentioning is liquidity. Ideally, you want to invest in an index fund with good liquidity so that you can buy and sell at your desired price (i.e., low spreads), without having to wait for your order to be fulfilled. Compared to SPY (One of the oldest ETFs in the market), VOO’s average daily volume is just $1.29B, which is significantly lower than SPY ($27.18B). This is not a deal-breaker for me because my investment strategy for this ETF is buy and hold only.

TL;DR

Is VOO a good ETF to buy? I would say yes, but it all depends on your investment horizon and strategy. Referring to the past 20 years' data, the US market is in an uptrend, and I believe it is going to be like this for at least another 20 years. Any downturns in between, I will simply take it as an opportunity to buy more shares and harvest at the end of my retirement age. Besides, saving the hassle of investigating individual stocks might be a great deal for most people these days too!

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Disclaimer: This financial blog is for educational purposes only and does not provide financial advice.