Published on: 2026-02-16
Updated on: 2026-08-12
VOO is still a good long-term investment in 2026, but it is not cheap. Vanguard’s latest portfolio data show a 27.5x P/E alongside 22.98% earnings growth, leaving strong profits to support an expensive starting valuation. If earnings growth slows materially, future returns could weaken even without a major market downturn.
VOO still charges just 0.03% annually, leaving the valuation and earnings of the S&P 500 as the main drivers of future returns.
Portfolio earnings are growing 22.98%, providing real support for a portfolio valued at 27.5x earnings.
Technology represents about 38% of VOO, so hundreds of holdings do not eliminate dependence on mega-cap technology earnings.
A high starting valuation raises timing risk, giving earnings more opportunity to offset multiple compression when the holding period is longer.
VOO’s 0.03% expense ratio keeps fund-level costs almost negligible. A $10,000 position costs about $3 a year before brokerage or account expenses, leaving the performance of the S&P 500 itself as the main driver of returns.
The underlying portfolio is much less cheap. VOO traded at 27.5 times earnings as of June 30, a demanding starting valuation for the companies inside the fund. Low fees cannot protect returns if that valuation later contracts.
VOO can track the S&P 500 efficiently and still deliver weak returns if the market pays a lower multiple for the same earnings.
VOO’s 22.98% portfolio earnings growth provides real support for its 27.5x valuation. If earnings rise faster than the share price, the P/E ratio can fall without requiring VOO itself to decline.
Starting from VOO’s 27.5x P/E, three scenarios show how earnings growth can be offset by a lower valuation. Dividends are excluded.
| Earnings growth | Ending P/E | Approx. price change |
|---|---|---|
| +23% | 27.5x | +23% |
| +15% | 25.0x | +4.5% |
| +10% | 24.0x | -4% |
Illustrative EBC calculations based on a starting P/E of 27.5x.
A 15% increase in earnings combined with a fall from 27.5x to 25x produces only about 4.5% price appreciation before dividends. Earnings can remain strong while returns disappoint when the market stops paying the same price for those profits.
At 27.5x earnings, future returns depend increasingly on profit growth rather than the market paying an even higher price for each dollar of earnings.
The S&P 500 also looks expensive on a forward basis. J.P. Morgan placed the index at 20.4x forward earnings on June 30, compared with a 30-year average of 17.2x. Its Shiller CAPE stood at 40.7x against a 30-year average of 28.8x.
The premium is not confined to the largest technology companies. The 10 biggest S&P 500 stocks traded at 21.6x forward earnings, only modestly above their historical average of 20.8x. The remaining companies traded at 19.6x, well above their 15.9x average.
VOO’s 27.5x portfolio P/E and J.P. Morgan’s 20.4x forward S&P 500 P/E use different earnings measures and should not be compared directly. Both point in the same direction: valuation pressure extends beyond a small group of mega-cap names.
VOO held 506 companies at June 30, while recent portfolio data put technology at roughly 38% of assets. Financials and communication services were each much smaller, giving technology disproportionate influence over fund-level earnings and valuation.
Hundreds of holdings do not eliminate concentration when one sector carries close to two-fifths of total weight. Strong technology earnings can support the entire fund, while weaker AI spending, margin pressure or lower mega-cap valuations can weigh on VOO even when many smaller holdings remain stable.
Technology has also been a major source of S&P 500 profit growth. S&P Global reported that information-technology operating EPS rose 75% year over year in Q1 2026, with AI-related revenue remaining a major driver.
A slowdown in mega-cap technology would therefore affect more than one corner of VOO. It would weaken one of the earnings engines currently supporting the fund’s elevated valuation.
A valuation reset can reduce returns quickly, while earnings need time to compound. A shorter holding period leaves less opportunity for profit growth to offset a lower market multiple.
Several earnings cycles give the companies inside VOO more time to grow into an expensive starting price. Over only a few years, even healthy earnings growth can be overwhelmed by a sharp decline in valuation.
A longer horizon does not eliminate valuation risk. It reduces how much one change in market pricing can dominate the final outcome.
VOO can be a simple starting point for broad U.S. large-cap exposure, with an annual expense ratio of just 0.03%. It does not meaningfully cover international stocks, bonds or smaller U.S. companies, so one ETF does not provide exposure to every major asset class.
VOO is expensive at 27.5 times portfolio earnings, although that does not mean an immediate decline is inevitable. Earnings growth of 22.98% can absorb part of the premium if profits continue rising faster than the share price.
Lump-sum investing puts the full amount into the market immediately and benefits sooner if prices rise. Gradual investing spreads the entry across several dates and reduces the impact of poor short-term timing. Vanguard research found lump-sum investing historically outperformed common cost-averaging strategies about two-thirds of the time.
Yes. If earnings rise 10% while VOO’s P/E falls from 27.5x to 24x, the price would decline by roughly 4% before dividends under the illustrative valuation model above. Profit growth does not guarantee positive returns when valuation multiples contract.
The next broad test begins with the Q3 2026 earnings cycle in October. Earnings growth holding near 20% while VOO’s P/E stabilises or declines would make today’s valuation easier to justify. If earnings slow while the P/E stays elevated, the valuation problem becomes harder, not easier.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
