Should You Really Invest in the Vanguard S&P 500 ETF Right Now? Here's What History Says.
Key Points
The S&P 500 has plunged in recent weeks, with many investors worried about a recession.
However, history shows there's never necessarily a bad time to invest.
The right strategy is key to surviving a recession or bear market.
The Vanguard S&P 500 ETF (NYSEMKT: VOO) is a staple in many investors' portfolios, and for good reason. It tracks the S&P 500 Index (SNPINDEX: ^GSPC), one of the main pillars of the overall stock market.
The S&P 500 is made up of 500 of the largest U.S. companies, many of which are industry-leading giants, and the Vanguard S&P 500 ETF aims to replicate the index's long-term performance.
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However, with the S&P 500 slipping in recent weeks, many investors are wondering whether this ETF is still a smart buy right now. Fortunately, history offers a clear answer.
How to avoid losing money during a recession
To be clear, the U.S. is not in a recession right now. But if the economy does take a turn for the worse, the S&P 500 has survived volatility of all types over the past century. While nothing is guaranteed in the stock market, it's highly likely it will continue thriving over time.
The key, though, is to stay invested for as long as you can. Ideally, that would mean at least five to 10 years, as history shows that the longer you keep your money in the market, the lower your odds of locking in losses.
Throughout the S&P 500's history, roughly one-third of its one-year periods ended in negative total returns, according to research from investment firm Capital Group. That means that if you buy an S&P 500 ETF and hold it for just one year before selling, there's a roughly 33% chance you'll lose money.
However, if you hold it for three years, the odds of earning negative total returns drop to 12%. After five years, 7%. And over the last 82 years, the S&P 500 has never experienced a 10-year period in which it earned negative total returns. In other words, if you hold an S&P 500 ETF for at least a decade, it's extremely unlikely, statistically, that you'll lose money.
The hidden advantage of investing right now
Staying invested for at least a few years can significantly reduce your chances of losing money during a bear market or recession. But by investing now, you can also save money in the short term.
The Vanguard S&P 500 ETF is currently priced at around $580 per share, as of this writing. That's down from around $640 per share in February. While that may not seem like a positive on the surface, it means investors can snag this ETF right now for around $60 off its highest share price. The further the ETF's price falls, the steeper the discount investors can earn.
Stock market downturns are intimidating, but they're also fantastic opportunities to load up on quality investments while they're essentially on sale. Because the S&P 500 is incredibly likely to recover from volatility with enough time, investing now can both save you money and set you up for lucrative long-term returns.
Should you buy stock in Vanguard S&P 500 ETF right now?
Before you buy stock in Vanguard S&P 500 ETF, consider this:
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Katie Brockman 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.
