Is it a good time to invest in the Vanguard S&P 500 ETF (VOO)?

Is the Vanguard S&P 500 ETF ( VOO -0.60%) worth buying at this moment? In my view, yes. Let's examine the S&P 500 index and the Vanguard ETF that mirrors its performance. 

Warren Buffett himself has praised the Vanguard S&P 500 ETF, mentioning it in his 2013 annual letter to shareholders:

One provision in my will instructs that cash will be given to a trustee for my wife's benefit. ... My guidance to the trustee is straightforward: Allocate 10% of the funds to short-term government bonds and 90% to a very low-cost S&P 500 index fund. (I recommend Vanguard's.) I expect that, over the long run, this approach will yield better results than most investors—whether they are pension funds, institutions, or individuals—who rely on high-cost managers.

Introducing the S&P 500

The S&P 500 is a collection of roughly 500 of the largest publicly traded companies in the United States. Combined, these companies represent about 80% of the total market value of U.S. stocks. This is why the S&P 500 is frequently used as a stand-in for the entire American stock market.

Below are the top 10 holdings in the index by weight as of mid-September, together accounting for around 38% of the ETF's total value:

Data source: Slickcharts.com.

Keep in mind that these weightings reflect the fact that the S&P 500 is weighted by market capitalization, so larger companies have a greater impact on the index's movements than smaller ones. For instance, Nvidia, with a recent market cap of $4.1 trillion, has a much bigger influence on the index than Domino's Pizza, which recently had a market cap of about $15 billion and ranked 427th in the S&P 500, representing just 0.03% of the index.

If you prefer a different approach to weighting (which is typical for most index funds), you might consider the Invesco S&P 500 Equal Weight ETF. As its name indicates, this fund gives each of its roughly 500 holdings an equal share. In this case, the top 10 stocks would only make up about 2% of the ETF's total value.

Introducing the Vanguard S&P 500 ETF

The Vanguard S&P 500 ETF is an index fund that tracks the S&P 500. It closely matches the index's performance by holding the same stocks in nearly identical proportions, all while charging extremely low fees. Its expense ratio is just 0.03%, meaning a $10,000 investment would cost you only about $3 per year.

This fund is an excellent choice for those optimistic about the long-term growth of the U.S. economy, allowing you to invest in a broad swath of the market at minimal cost.

By investing in this ETF, you avoid the need to research and select individual stocks or decide when to buy and sell them. The S&P 500 index managers handle the inclusion and removal of companies as needed. (For example, Robinhood Markets, AppLovin, and Emcor are joining the index on Sept. 22, while MarketAxess Holdings, Caesars Entertainment, and Enphase Energy are being removed).

This periodic rebalancing is a key feature of the S&P 500 and helps explain its strong long-term performance. Underperforming companies are often replaced by those with better growth prospects.

According to S&P Dow Jones Indexes, over the last 15 years, the S&P 500 has outperformed 88% of actively managed large-cap mutual funds (as of June 30), and over the past 10 years, it has beaten 86% of them.

So, it's well worth considering the Vanguard S&P 500 ETF or another low-cost S&P 500 index fund (or even other types of index funds). Just make sure you invest only money you can leave untouched for at least five years, if not longer, since the stock market can be unpredictable in the short term. However, over the long haul, it has historically trended upward.