Published on: 2026-02-16
VOO offers a straightforward, low-cost way to access the S&P 500, providing broad exposure to large U.S. companies with minimal friction. Its appeal lies in its structure, not branding. Investors can gain diversified earnings exposure in a single trade at one of the lowest expense ratios available.
The challenge is not knowing what VOO owns, but understanding where it concentrates risk. While the S&P 500 includes hundreds of companies, a small group of mega-cap stocks can drive much of the portfolio’s performance, and starting valuations affect future returns. A good investment matches the product’s exposures with the investor’s time horizon, liquidity needs, and risk tolerance.
VOO is a strong default for U.S. large-cap exposure because it fully replicates the S&P 500, minimizing tracking error and keeping fees low.
The primary risk is not the ETF structure, but the index itself. Market-cap weighting means returns are increasingly driven by the largest stocks and their dominant sectors.
Forward returns depend heavily on starting conditions. With a portfolio-level P/E around the high-20s, VOO is priced for strong earnings delivery, leaving less room for disappointment.
VOO is best used as a core holding, not a complete portfolio. It can anchor a long-term plan, but does not include international stocks, small caps, or bonds.
The right question is not “Will VOO go up?” The right question is “Can you hold through an equity drawdown without selling?” History shows S&P 500 declines can be swift and deep.
VOO tracks the S&P 500, which represents large-cap U.S. equities and covers about 80% of U.S. market capitalization. This broad coverage is why VOO is often considered synonymous with the U.S. stock market, though it does not represent the entire market.
VOO uses a straightforward approach, holding index constituents at market-cap weights through full replication. The fund owns nearly the same stocks in similar proportions as the benchmark. As of the latest data, the portfolio includes 504 stocks, reflecting index composition and implementation factors such as share classes and corporate actions.
VOO holds hundreds of companies, but returns are not evenly distributed. The top 10 holdings account for about 40.7% of assets, and Information Technology represents about 34.4% of the portfolio. This is a result of market-cap weighting, which intentionally emphasizes the most highly valued companies.
This concentration creates two practical implications:
VOO can outperform sharply when mega-caps lead.
VOO can lag or stumble when leadership narrows or reverses.
Recent history demonstrates how leadership can narrow. In 2024, a small group of the largest stocks drove most of the index’s return. Investors in VOO accept this concentration as an inherent feature.
VOO’s expense ratio is 0.03%, which keeps fee drag close to negligible for long-term holders. Low turnover supports efficient index tracking and can reduce taxable capital gains distributions; the fund’s reported turnover rate is 2.3% in the most recent profile.
Liquidity is rarely an issue. The fund’s large asset base and high trading volume result in tight bid-ask spreads for typical order sizes. As of the latest profile, total assets are about $839.1B. This scale reduces the likelihood that trading frictions or operational issues will impact performance.
VOO’s long-run record is strong because U.S. large caps have compounded strongly, and costs have been kept exceptionally low. As of the latest standardized returns table, VOO’s average annual total return has been:
1-Year: 17.84%
3-Year (Annualized): 22.97%
5-Year (Annualized): 14.38%
10-Year (Annualized): 14.78%
Since Inception (Annualized): 14.82%
These results do not guarantee similar future performance, but they show that VOO has delivered index returns with minimal fees as intended.
A set-it-and-forget-it approach can falter if investors overlook equity volatility. Recent year-end returns highlight both the potential gains and the risk of drawdowns:
Year |
VOO Total Return |
|---|---|
2020 |
18.35% |
2021 |
28.66% |
2022 |
-18.15% |
2023 |
26.25% |
2024 |
24.98% |
2025 |
17.84% |
The 2022 decline serves as a reminder that VOO can experience significant losses, even when it remains fundamentally high quality. Quality does not protect an index from valuation compression or interest rate shocks.
VOO’s current portfolio characteristics differ from those in the early 2010s. The fund profile shows a portfolio P/E of about 28.4x, a price-to-book ratio of 5.2x, and an equity yield of approximately 1.1%.
A practical way to think about forward returns is a simple building-block framework:
Income component: dividend yield (roughly 1%)
Fundamental growth: earnings growth over time
Valuation change: whether the market pays more or less per dollar of earnings
When valuations are high, returns can moderate even without a market decline. In this case, returns rely more on earnings growth and less on valuation increases. This can still be a solid outcome for long-term investors, though it may seem less impressive than periods when both earnings and valuations rose.
VOO carries equity risk, with no maturity date, capital guarantee, or downside protection. The key consideration is whether investors can hold through declines without converting temporary losses into permanent ones by selling.
History provides stress tests that matter:
During the financial crisis, the S&P 500 fell 56.8% from its October 9, 2007 peak to its March 9, 2009 low.
During the COVID shock, the S&P 500 fell 33.8% between February 19, 2020 and March 23, 2020.
VOO was not available in 2007, but it tracks the same equity market as the SPDR S&P 500 ETF. Investors should expect similar drawdowns over a full market cycle.
Concentration risk: Top holdings and a tech-heavy tilt can amplify performance swings when leadership changes.
Valuation risk: Higher starting multiples increase sensitivity to interest rates and to earnings disappointments.
Investor behavior risk: The most common way investors fail with VOO is by picking the wrong ETF. It is buying high and selling low because they did not plan for drawdowns.
VOO distributes income quarterly. Recent distributions have been steady, reflecting the index’s dividend stream rather than any managed payout policy. The fund’s 30-day SEC yield is about 1.08% in the latest profile snapshot, which is consistent with the broader equity yield profile of the index today.
In a taxable account, the tax profile is usually straightforward:
Dividends create annual tax liability even if reinvested.
Low turnover can limit capital gains distributions, but it does not eliminate taxes.
Your after-tax outcome depends on your bracket and holding period, not on the ticker symbol.
VOO can be tax-efficient for an equity ETF, but tax-efficient does not mean tax-free.
VOO, SPY, and IVV all provide exposure to the S&P 500. The main differences are cost and structure.
VOO: low fee and open-ended ETF structure.
IVV: similar low fee and comparable S&P 500 exposure.
SPY: widely traded and historically the liquidity benchmark for active traders, but it is structured as a UIT and carries a higher stated expense ratio.
For long-term compounding, cost and tracking efficiency are more important than brand recognition. For high-frequency trading, SPY’s trading ecosystem remains attractive, even if it is not the lowest-cost option.
For broader U.S. equity exposure beyond the S&P 500, VTI offers mid- and small-cap exposure in a single fund. This can modestly improve diversification for investors seeking total market coverage rather than just large-cap exposure.
VOO tends to be a good investment when:
The time horizon is 7 to 10 years or longer, so volatility can be absorbed over that period.
The investor wants a core U.S. equity position that is simple to maintain.
The portfolio already includes diversifiers such as bonds, international stocks, or both.
VOO is a weaker fit when:
The money is needed soon, and a drawdown would force selling.
The investor is already overexposed to U.S. mega-cap tech through employer stock or sector-heavy funds.
The investor wants global equity diversification but is only buying one equity fund.
VOO is often suitable for beginners because it offers instant diversification across large U.S. companies at a very low expense ratio. The main risk is volatility, not complexity. Beginners should have a realistic time horizon and a plan to continue investing during downturns.
VOO reduces company-specific risk by holding hundreds of stocks, but it does not eliminate market risk. When U.S. equities decline, VOO will decline as well. Expect significant drawdowns over a full cycle, even if the underlying companies remain profitable.
Yes. VOO distributes dividends quarterly. The yield moves with market prices and the underlying dividend stream, so it will vary over time. Dividends can support total return, but they do not prevent drawdowns, and they can create taxable income in brokerage accounts.
For long-term holders, VOO’s lower fee is a concrete advantage, and both funds track the same index. SPY can be compelling for traders due to its high trading volume and deep options market. The “better” choice depends on whether the priority is compounding or execution.
A common approach is to use VOO as the U.S. equity core and adjust the allocation based on risk tolerance. Conservative investors may choose a smaller allocation with bonds, while aggressive investors may opt for a larger allocation with international equities. The appropriate level is the one you can maintain through a bear market.
Yes. Ten-year periods are usually kind to diversified equities, but they are not guaranteed. If valuation compresses and earnings growth disappoints, returns can be flat or negative even over long windows. The best defense is diversification, disciplined contributions, and avoiding forced selling.
Is VOO a good investment? For many long-term investors, yes. It offers broad U.S. large-cap exposure with very low costs and strong index tracking. However, VOO does not protect against equity drawdowns and reflects the current market structure, including significant concentration in the largest companies and valuations that may limit future returns.
VOO is most effective as a foundational building block within a portfolio aligned to the investor’s timeline and risk tolerance. Those who remain invested during market declines, continue contributing, and diversify beyond VOO are most likely to benefit from the long-term growth of U.S. corporate earnings.
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.
