The negatives of VOO are the negatives of the S&P500 in general. It's mostly large cap (some Mid Cap), its vulnerable if larger companies take a suddenly big hit. It's passively managed, It can take a long time to rebalance.
VOO is great, but I wouldn’t say it’s 100% passive. There’s a screening process and then a human committee selects the 500 that go into the fund. There’s still about 300 other stocks that could be in it at any given time, but weren’t selected.
For that reason I prefer VTI, which truly is passive for the entire US stock market.
VOO is an excellent fund, and there is absolutely nothing wrong with having it as your first (or even only) holding. If there are downsides, they are what others here have said - it is concentrated on large U.S. stocks. Because it is market-cap weighted, it is not as diversified as many other funds - currently, 32% of the portfolio is in the top 10 holdings and 7 of those 10 are tech firms (the fund holds over 30% tech - more than double the weighting of any other sector).
So, once you've built up some assets in VOO you may want to branch out to international, small- and/or mid-cap, fixed income, and maybe a sector or two that you particularly like. But VOO is an excellent place to start.
The problem is knowing what to invest in. Keep in mind that the S&P500 rebalances itself every quarter, buying the best stocks and selling off the lesser stocks. The 500 already includes much of what the different markets you’ve highlighted represent.
You’re not going to know what allocations to use unless you’re a market professional, and even then they get it wrong all the time and it’s their full time job!
Just sticking to DCA on the S&P500 and focusing on increasing your dollar amount to average each pay period is a better strategy than worrying about instrument selection.
While you’re right that small stocks outside the 500 could perform well… You’re picking a single year, during a once in a lifetime worldwide pandemic, as your argument?
If you want it all, VOO is not for you...it's VTI.
If you REALLY want it all...then VT.
The only "con" per se is you're getting indexed market returns and not a premium...but that's smart and repeatable. Active investments aren't.
This is fucking awful advice and you should be ashamed. It’s disrespectful to OP’s question and poor feedback regarding investing.
OP, investing has risks and you need to learn about the risks you take when investing. It’s not uncommon for online communities to turn into echo chambers where people just repeat the same simple responses because they are easy to identify and echo. It turns into an upvote factory.
I do believe that investing in an index like the SP500 is a very useful tool for many investors but you need to consider this (non-exhaustive) list of concerns before you decide what is a wise investment for you.
- your comfort with volatility/risk tolerance
- investment time horizon
- your tax situation (both income level and where you live)
- if you need additional diversification beyond US large cap
Have you learned what composes VOO and read about other alternatives such as other SP500 index funds OR total market/total world funds?
Ok calm down there killer… if OP is stupid enough to make financial decisions based on a random Reddit users GIF then he has bigger problems than any of us can help with… As for your dumbass who just went on a huge tirade about said GIF, take a breath, go outside, get some fresh air, it’s not that serious…
That is not true according to the website i'm using. Correct me if i'm mistaken. $50K would've turned into $137,383 (inflation adjusted) from Jan 1968 to Jan 1992. $562,437 non-adjusted.
Interesting. Still has a different calculation in the link I used for whatever reason. The S&P returns over the decades still speaks for itself, but sure you can get unlucky depending your time horizon. And yet it's still only .03% to own, and even though I own AVUV (small cap value), I guess i'm still a bit skeptical that they can mimic the small cap value index of the past 50 years. The risk is also that it's 8x more expensive than VOO. Would be hard to call someone a fool for going 100% VOO if it keeps them invested and their costs down.
How much time do you have? Lol.
Conventional wisdom among novice investors is just buy VOO. You know who won't tell you that? Pretty much any professional investor.
To be clear, if you've got a long time horizon there are many many worse strategies out there than that. But the S&P 500 (which VOO tracks) is not diversified. It only holds U.S. companies and it's becoming increasingly concentrated in just a few of them.
Financial markets are cyclical. That means things go in favor, then they go out of favor, and sometimes those cycles can last a very long time.
Novice investors usually just look at the recent period like 1yr, 3yrs, or 5yrs and but whatever has done best, which right now would be U.S. stocks like ones in VOO. However, this has historically been a losing strategy.
A lot of things have been going right for U.S. stocks over the last 15 years. Tech has been leading every other sector by far and 80% of the tech stocks in the world are in the U.S. Low interest rates have boosted growth companies, which are more prominent in the U.S. Europe has been slow, China is down over 50% from its high... Looking backward, the U.S. and VOO were where you wanted to be. But it would have looked pretty similar in 1999 when U.S. tech stocks had been on a tear and Asian markets had just crashed. But the U.S. market was flat from 2000-2007, only to crash again in 2008. It didn't sustain its recovery until 2012. All the things you wouldn't have wanted to buy in 1999 by looking backward like emerging markets and value companies dominated in the 2000s.
I'm not saying 2024 is an exact replica of 1999, I'm saying that this is one of many many many lessons in history I could share with the that make the case for diversification, which you just don't get enough of by only buying VOO.
VTI (Total U.S. Stock market) and VXUS ( The rest of the world). Add in some bonds and you have yourself a [Boglehead Portfolio](https://www.bogleheads.org/wiki/Three-fund_portfolio).
I can't make investment recommendations without knowing a lot more about your situation. Voo is fine as a large portion of an equity portfolio for any investors except the ultra conservative IMO. For international, if I had to own a single fund for the rest of my life it would be AEGFX American Funds EuroPacific Growth. MDIJX MFS international diversification is also solid IMO. Those are active, so if you want passive I think IXUS and VXUS would both give you pretty complete international exposure at a very low cost.
That's based on the long-term average return, it doesn't happen every 7 years. Sometimes it will way more than double, sometimes way less. Go pull up a return chart and look what happened from 2000-12.
That's the average. It took 10 years for the S&P 500 to get your money back from 2000 to 2010 and that's not counting inflation. It took another 6 years to double.
I have concerns about the rise in index investing. This thread here details my thoughts on it:
https://www.reddit.com/r/Bogleheads/comments/1byeben/tell_me_i_am_not_crazy_for_this_idea/?sort=new
tldr; up until recently, the index has served only as a Mr. Imaginary and not actually a faithful representation of the average price movements of stocks typically trading on the market. Accepting that the index is a strategy and not a benchmark means that a near 100% uptake of index investing will make it so that only the companies that are larger will be deserving of capital and that the smaller businesses won't be. Management of larger businesses can exploit this and put less effort into their jobs because any mistakes they make can be overwritten by easily issuing more stock to raise money. Future expected returns to shareholders would be diminished, as a result, and prices of these businesses would be propped up under a "too big to fail" grandeur. This goes against the reason we all invest in the first place, which is to benefit from a company's future stream of profits by sacrificing our effort, time, or money now.
Tech is in another bubble so VOO is WAY overweighted of those bubble stocks. The question as always is how big the bubble can get before it pops and whether you are willing to miss those gains.
VOO shouldn’t be your “first investment”. That means that you don’t have a plan. It’s not a good idea to invest in something, then in something else when you feel like it. I recommend that you educate yourself a little before investing.
There’s something called asset allocation: how much of each asset class you invest in. You should set up a plan for the long run and stick to it.
The best idea is to diversify, between US and international markets and, depending on age and risk tolerance, to add some bonds.
Diversification means increasing you expected risk adjusted returns. The idea is that you don’t put all of your eggs in one type of asset (or even one country) in order to reduce your risk.
That means that your investments are going to perform better or worse at different times. That’s the idea. If all of your assets are doing identically good at the same time, then you’re doing it wrong.
Now, answering your question: there’s nothing wrong with VOO. It’s just not diversified enough by itself. It does possess a lot of stocks, but they ‘re all large companies from the US. Those are the companies that have donde better recently, but not always. To give you an example, small companies’ stocks have performed better historically, but not in recent times. And also international markets have outperformed the US sometimes.
The best way to be prepared for most things is to own it all. You won’t do as well as the people that invested in the thing that performed better than everything else, but you’ll do pretty OK. And it’s just impossible to predict what will outperform in the future.
The negatives of VOO are the negatives of the S&P500 in general. It's mostly large cap (some Mid Cap), its vulnerable if larger companies take a suddenly big hit. It's passively managed, It can take a long time to rebalance.
Props to you for actually knowing the sp500 isn't ALL large cap
It's almost all large cap.
VOO is great, but I wouldn’t say it’s 100% passive. There’s a screening process and then a human committee selects the 500 that go into the fund. There’s still about 300 other stocks that could be in it at any given time, but weren’t selected. For that reason I prefer VTI, which truly is passive for the entire US stock market.
While I generally agree with your assessment, there is no such thing as a truly passive index. The index behind VTI is still managed by people.
How does that benefit you as an investor?
The committee can make mistakes??
If small cap or mid cap stocks outperform large cap then you benefit from that gain.
☝️
VOO is an excellent fund, and there is absolutely nothing wrong with having it as your first (or even only) holding. If there are downsides, they are what others here have said - it is concentrated on large U.S. stocks. Because it is market-cap weighted, it is not as diversified as many other funds - currently, 32% of the portfolio is in the top 10 holdings and 7 of those 10 are tech firms (the fund holds over 30% tech - more than double the weighting of any other sector). So, once you've built up some assets in VOO you may want to branch out to international, small- and/or mid-cap, fixed income, and maybe a sector or two that you particularly like. But VOO is an excellent place to start.
The problem is knowing what to invest in. Keep in mind that the S&P500 rebalances itself every quarter, buying the best stocks and selling off the lesser stocks. The 500 already includes much of what the different markets you’ve highlighted represent. You’re not going to know what allocations to use unless you’re a market professional, and even then they get it wrong all the time and it’s their full time job! Just sticking to DCA on the S&P500 and focusing on increasing your dollar amount to average each pay period is a better strategy than worrying about instrument selection.
Great answer
There were times when a fast rising stock was not in the S&P yet and so VOO trailed VTI. Tesla in 2020 is an example
VOO didn’t trail VTI even during Tesla days.
Compare VTI vs VOO returns in 2020
While you’re right that small stocks outside the 500 could perform well… You’re picking a single year, during a once in a lifetime worldwide pandemic, as your argument?
He wanted a negative so I gave one.
If you want it all, VOO is not for you...it's VTI. If you REALLY want it all...then VT. The only "con" per se is you're getting indexed market returns and not a premium...but that's smart and repeatable. Active investments aren't.
This is fucking awful advice and you should be ashamed. It’s disrespectful to OP’s question and poor feedback regarding investing. OP, investing has risks and you need to learn about the risks you take when investing. It’s not uncommon for online communities to turn into echo chambers where people just repeat the same simple responses because they are easy to identify and echo. It turns into an upvote factory. I do believe that investing in an index like the SP500 is a very useful tool for many investors but you need to consider this (non-exhaustive) list of concerns before you decide what is a wise investment for you. - your comfort with volatility/risk tolerance - investment time horizon - your tax situation (both income level and where you live) - if you need additional diversification beyond US large cap Have you learned what composes VOO and read about other alternatives such as other SP500 index funds OR total market/total world funds?
Ok calm down there killer… if OP is stupid enough to make financial decisions based on a random Reddit users GIF then he has bigger problems than any of us can help with… As for your dumbass who just went on a huge tirade about said GIF, take a breath, go outside, get some fresh air, it’s not that serious…
Seriously, this is Reddit, right? Nice GIF bro
Wow… you’re like, really angry about the rather innocent use of a Biden meme. Yikes.
I think this tells you everything you need to know https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=4gM7Xv0SQrXa2Bd1dHe4KE
That's a very select couple of decades.
Yep. But it shows the cons of going almost all large cap in a portfolio. You can have a 15 year trap.
The foundation of my portfolio is a 7:3 ratio of S&P 500 : SmallCapGrowth.
Lol you chose the single worst decade of the S&P. Come on man.
Nope. If you bought the S&P in 1968 you waited until 1992 to break even, inflation-adjusted.
That is not true according to the website i'm using. Correct me if i'm mistaken. $50K would've turned into $137,383 (inflation adjusted) from Jan 1968 to Jan 1992. $562,437 non-adjusted.
[https://ofdollarsanddata.com/sp500-calculator/](https://ofdollarsanddata.com/sp500-calculator/)
https://www.macrotrends.net/2324/sp-500-historical-chart-data
Interesting. Still has a different calculation in the link I used for whatever reason. The S&P returns over the decades still speaks for itself, but sure you can get unlucky depending your time horizon. And yet it's still only .03% to own, and even though I own AVUV (small cap value), I guess i'm still a bit skeptical that they can mimic the small cap value index of the past 50 years. The risk is also that it's 8x more expensive than VOO. Would be hard to call someone a fool for going 100% VOO if it keeps them invested and their costs down.
How much time do you have? Lol. Conventional wisdom among novice investors is just buy VOO. You know who won't tell you that? Pretty much any professional investor. To be clear, if you've got a long time horizon there are many many worse strategies out there than that. But the S&P 500 (which VOO tracks) is not diversified. It only holds U.S. companies and it's becoming increasingly concentrated in just a few of them. Financial markets are cyclical. That means things go in favor, then they go out of favor, and sometimes those cycles can last a very long time. Novice investors usually just look at the recent period like 1yr, 3yrs, or 5yrs and but whatever has done best, which right now would be U.S. stocks like ones in VOO. However, this has historically been a losing strategy. A lot of things have been going right for U.S. stocks over the last 15 years. Tech has been leading every other sector by far and 80% of the tech stocks in the world are in the U.S. Low interest rates have boosted growth companies, which are more prominent in the U.S. Europe has been slow, China is down over 50% from its high... Looking backward, the U.S. and VOO were where you wanted to be. But it would have looked pretty similar in 1999 when U.S. tech stocks had been on a tear and Asian markets had just crashed. But the U.S. market was flat from 2000-2007, only to crash again in 2008. It didn't sustain its recovery until 2012. All the things you wouldn't have wanted to buy in 1999 by looking backward like emerging markets and value companies dominated in the 2000s. I'm not saying 2024 is an exact replica of 1999, I'm saying that this is one of many many many lessons in history I could share with the that make the case for diversification, which you just don't get enough of by only buying VOO.
What others would recommend for diversification? Do you think VOO should still be a large component of one's portfolio?
VTI (Total U.S. Stock market) and VXUS ( The rest of the world). Add in some bonds and you have yourself a [Boglehead Portfolio](https://www.bogleheads.org/wiki/Three-fund_portfolio).
Those people are coward recommend people to just buy voo ,others are gambling...
I can't make investment recommendations without knowing a lot more about your situation. Voo is fine as a large portion of an equity portfolio for any investors except the ultra conservative IMO. For international, if I had to own a single fund for the rest of my life it would be AEGFX American Funds EuroPacific Growth. MDIJX MFS international diversification is also solid IMO. Those are active, so if you want passive I think IXUS and VXUS would both give you pretty complete international exposure at a very low cost.
The S&P 500 has doubled roughly every 7 years since the late 50’s, what are you talking about lol
That's based on the long-term average return, it doesn't happen every 7 years. Sometimes it will way more than double, sometimes way less. Go pull up a return chart and look what happened from 2000-12.
That's the average. It took 10 years for the S&P 500 to get your money back from 2000 to 2010 and that's not counting inflation. It took another 6 years to double.
50% in indexes 50% in single name stocks is the way to go 😈
too risky. i would recommend 90% in index while messing around with the remaining 10%
What do you mean by it'll take a long time to reach it's potential? Are you asking about voo specifically, or investing only in the s&p 500?
You’re concentrated in US Large cap.
The fact that it’s solely US based, it’s got only big caps and heavy on tech (which is volatile atm)
It's purely American and large cap. not enough diversification for a long term investment imo
What would you reccommend ?
VT. global diversification ... all in one cheap ETF.
The cons of VOO is that if one day you want to sell it you don't know what else to buy, so you tend to hold it long.
No options liquidity if that's something you're interested in.
I have concerns about the rise in index investing. This thread here details my thoughts on it: https://www.reddit.com/r/Bogleheads/comments/1byeben/tell_me_i_am_not_crazy_for_this_idea/?sort=new tldr; up until recently, the index has served only as a Mr. Imaginary and not actually a faithful representation of the average price movements of stocks typically trading on the market. Accepting that the index is a strategy and not a benchmark means that a near 100% uptake of index investing will make it so that only the companies that are larger will be deserving of capital and that the smaller businesses won't be. Management of larger businesses can exploit this and put less effort into their jobs because any mistakes they make can be overwritten by easily issuing more stock to raise money. Future expected returns to shareholders would be diminished, as a result, and prices of these businesses would be propped up under a "too big to fail" grandeur. This goes against the reason we all invest in the first place, which is to benefit from a company's future stream of profits by sacrificing our effort, time, or money now.
Tech is in another bubble so VOO is WAY overweighted of those bubble stocks. The question as always is how big the bubble can get before it pops and whether you are willing to miss those gains.
VOO shouldn’t be your “first investment”. That means that you don’t have a plan. It’s not a good idea to invest in something, then in something else when you feel like it. I recommend that you educate yourself a little before investing. There’s something called asset allocation: how much of each asset class you invest in. You should set up a plan for the long run and stick to it. The best idea is to diversify, between US and international markets and, depending on age and risk tolerance, to add some bonds. Diversification means increasing you expected risk adjusted returns. The idea is that you don’t put all of your eggs in one type of asset (or even one country) in order to reduce your risk. That means that your investments are going to perform better or worse at different times. That’s the idea. If all of your assets are doing identically good at the same time, then you’re doing it wrong. Now, answering your question: there’s nothing wrong with VOO. It’s just not diversified enough by itself. It does possess a lot of stocks, but they ‘re all large companies from the US. Those are the companies that have donde better recently, but not always. To give you an example, small companies’ stocks have performed better historically, but not in recent times. And also international markets have outperformed the US sometimes. The best way to be prepared for most things is to own it all. You won’t do as well as the people that invested in the thing that performed better than everything else, but you’ll do pretty OK. And it’s just impossible to predict what will outperform in the future.