The Vanguard S&P 500 index fund is one of the most popular and well-known investing options in the world. The fund has produced an annual return of 12.5% over the past decade, and its performance has been tracked by investors and fund managers alike. Warren Buffett, the legendary investor, owns two S&P 500 index funds through Berkshire Hathaway.
More than $7 trillion of assets were indexed to the S&P 500 at the end of 2021, making it one of the most widely followed benchmarks in the world. This year, the fund has dropped 65.4% through Wednesday, compared to the S&P 500's 22.3% decline. Despite the losses, the index is still considered to be a safe and reliable investment.
Since 1928, the S&P 500 Index has only fallen for two straight years on four occasions. During the Great Depression, the S&P 500 dropped for four consecutive years from 1929 to 1932. To be sure, both fund managers and Wall Street strategists are worried about a similar scenario repeating itself.
GARP stands for “growth at a reasonable price.” SPGP tracks the S&P 500 GARP Index, which is reconstituted and rebalanced twice a year, on the third Friday of June and December. It is designed to capture the performance of stocks that have potential for growth and low price-to-earnings ratios.
So far in December, the Dow is down 4.5%, while the S&P 500 and Nasdaq have tumbled further. Bill Miller, a legendary investor, is also feeling the heat. Miller's Opportunity Trust mutual fund is down about 36% in 2022, compared to the S&P 500's decline of just over 10%.
In afternoon trading, the S&P 500 was down nearly 3 percent and the tech-heavy Nasdaq index down roughly 3.7 percent. By the end of the day, the markets had recovered most of their losses. Despite the volatility, the S&P 500 index fund is still seen as a safe investment.
Berkshire's portfolio includes two S&P 500 index funds: Vanguard 500 Index Fund ETF and SPDR S&P 500 ETF Trust. But Vanguard's expense ratio is lower, making it a better choice for investors. The expense ratio is the fee charged by the fund's managers, and it can have a significant impact on returns.
For that reason, the S&P 500 Growth index and the tech-heavy Nasdaq index are better choices for investors who want to take a more active approach to their investment. Both indices are more diversified and have lower expense ratios, which can make them more attractive to investors.
Sign up for Kiplinger's FREE investing Weekly e-letter for stock, ETF and mutual fund recommendations, and other investing advice. While the S&P 500 index fund is a great way to diversify your portfolio, it's important to understand the risks associated with investing in the index.
