History Says You Should Know These 3 Things Before Buying the Vanguard S&P 500 ETF (VOO)

Before buying the Vanguard S&P 500 ETF (VOO), it is crucial to understand three key aspects. First, the fund is highly concentrated with the top 10 stocks accounting for 38% of its total assets. This is a stark contrast to the past, where the top 10 stocks only made up 27% of the benchmark during the dot-com era. Second, the information technology sector, led by Nvidia, Apple, Alphabet, Microsoft, and Amazon, dominates the ETF, accounting for 37% of its holdings.

This exposure is a bullish bet on the artificial intelligence boom. Third, the Vanguard S&P 500 ETF has delivered an impressive total return of 314% over the past decade, outpacing the S&P 500's average annual return of 10%. However, the market's current valuation, as indicated by a cyclically adjusted price-to-earnings ratio (CAPE) of 42, is historically elevated, suggesting a potential reversion to the mean.

Moreover, volatility is normal, and investors should be prepared for major drawdowns and bear markets every few years. Despite being a popular choice, Vanguard S&P 500 ETF is not included in the Motley Fool Stock Advisor's top 10 list of long-term growth stocks.