The Vanguard S&P 500 Index ETF (TSX:VFV) is one of the most popular Canadian-listed ETFs, with $24.4 billion in assets under management.
It’s the default choice for many investors who want simple, low-cost exposure to the 500 largest publicly traded companies in the United States. For new investors, it offers instant diversification in a single trade. For seasoned investors, it’s a core building block that can anchor a portfolio for decades.
But even a tried-and-true fund like VFV isn’t immune to debate. With U.S. stocks trading near record highs and valuations stretched, some wonder whether now is the right time to add more. Others argue that history shows long-term investing in the S&P 500 pays off regardless of the entry point. Here’s the case for and against buying VFV today.
The Case for
The S&P 500 has been one of the hardest benchmarks for active managers to beat. According to SPIVA’s 15-year scorecard, 89.5% of U.S. large-cap funds underperformed the index. VFV gives you exposure to those 500 U.S. large-cap companies in one trade at a rock-bottom 0.09% management expense ratio, just $9 annually for every $10,000 invested.
You’re also getting the diversification and sector balance of the S&P 500, which spans everything from mega-cap tech to industrials, healthcare, and financials. Over decades, this has translated into competitive long-term returns without the need to pick individual winners.
The Case Against
Valuations are looking rich. The S&P 500 trades at a forward price-to-earnings ratio of 27.2 and a price-to-book ratio of 5. While the index’s average return on equity of 27% and earnings growth rate of 22% are impressive, you’re paying a premium to own these companies.
If you’re a value-focused investor or looking for markets with cheaper entry points, international stocks or U.S. small caps are more attractively priced right now. While market timing is risky, valuation-sensitive investors may prefer to direct new money toward those areas.
The Foolish takeaway
U.S. stocks have looked expensive many times before, yet over the long term, the S&P 500 has consistently delivered strong average returns. While no investment is risk-free, VFV remains one of the simplest and cheapest ways to gain broad U.S. exposure, backed by a long track record of performance.
If you’re investing for the long haul, the best move may be to stop worrying about the perfect entry point. Set up a dollar-cost averaging plan in VFV, keep adding through both good markets and bad, and let compounding and time do the heavy lifting. It’s a strategy that has worked for generations of investors – and there’s no reason it can’t work for you.
