There are some investors out there who focus their time and energy on picking individual stocks for their portfolios. For others, however, a smarter approach is simply to choose an exchange-traded fund (ETF) to invest in.

There are many of these investment vehicles on the market. But those offered by Vanguard stand out. That's because this asset manager has been around for five decades. What's more, it had a whopping $10 trillion in assets under management as of year-end 2024.

If you have $1,000 ready to invest right now, then look no further than the Vanguard S&P 500 ETF (VOO -0.14%), which I think is the smartest Vanguard ETF to buy.

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Automatic diversification

As the name suggests, the Vanguard S&P 500 ETF tracks the performance of the S&P 500 index. This widely followed benchmark contains 500 leading companies that trade on U.S. exchanges. It covers a notable 80% of stock market capitalization domestically.

At a high level, investors who buy this ETF essentially get broad exposure to the American economy and all the growth, innovation, and entrepreneurship that come with it. This has historically been a fantastic bet to make, as the U.S. is the world's economic powerhouse.

Investors immediately achieve diversification in their portfolios. The Vanguard S&P 500 ETF contains some of the biggest businesses on planet Earth, like Apple and Microsoft. On the other end of the spectrum are much smaller holdings in lesser-known companies like Millrose Properties and News Corp Class B. At the end of the day, though, every sector is represented.

This can be enticing for investors who don't have the time or necessary financial analysis skills to select individual stocks. It's a low-maintenance way to invest.

Compounding capital over time

One of the top data points investors want to know deals with performance. In the past decade, the Vanguard S&P 500 ETF has generated a total return, which includes dividends, of 221% (as of May 8). This would've turned an initial $1,000 investment into $3,213 today, translating to a 12.4% compound annual rate of return.

It's difficult to argue with that kind of result. Over the very long term, the S&P 500 has produced an annualized gain of about 10%, so the past 10 years' results are well ahead of the norm. Looking ahead, I believe the reasonable perspective is to believe things will revert to the mean, although it is hard to predict.

Investors will be pleased to know that the Vanguard S&P 500 ETF charges an expense ratio of only 0.03%. On a $1,000 investment, just $0.30 goes to Vanguard on a yearly basis. This helps cover the asset manager's various operating expenses.

The vast majority of active fund managers lose to the S&P 500 over long periods of time. They still typically charge egregious fees for underperformance. This makes the Vanguard S&P 500 ETF look like a no-brainer investment decision.

A smart approach

As of this writing, the Vanguard S&P 500 ETF trades 7% below its peak, a record that was established in February. The market's sentiment has improved drastically since early April, perhaps due to optimism surrounding possible resolutions with tariffs and trade negotiations.

While it can be tempting to want to try to time the market, waiting for better entry points, the best course of action is to invest as soon as possible. Time in the market is better than timing the market.

Another smart approach is to dollar-cost average over many months. This allows you to take advantage of multiple valuations to fully allocate a position. In addition to investing $1,000 in the Vanguard S&P 500 ETF right now, putting another $20 or $50 to work every month or quarter can further enhance returns over the long haul.