Why I would buy a Vanguard S&P 500 ETF in a 2022 stock market crash

The stock market might crash in 2022. However, a Vanguard S&P 500 ETF can be a solid choice even when markets are volatile. Here’s why.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

A stock market crash is a sharp drop in prices in a short amount of time. Fortunately, they’re infrequent. Unfortunately, they’re also inevitable.

The stock market has already had a bumpy start to the year and in case the markets take a turn for the worse, I’m now thinking about how I can make the most of it with this Vanguard exchange traded fund (ETF).

Vanguard S&P 500 ETF

For my own portfolio, during a downturn, I would choose Vanguard S&P 500 ETF (LSE: VUSA). Out of all the S&P 500 ETF options in the market, this sits in the middle in terms of size ($37bn) and management costs (0.07%).

This fund includes all the companies from the index, which are some of the strongest and most stable corporations in the US. It contains 500 large companies that are selected by a committee. Firms must have a big enough market cap, have at least 10% of shares outstanding and meet liquidity and profitability requirements.

It includes big-name companies such as Microsoft, Apple and Amazon. In terms of industries, the index includes a variety of sectors such as technology, retailers and banking.

One downside is that the index only includes companies from the US. It’s true that many of these firms derive some of their earnings from outside of that country, but this percentage has been falling over time.

Another issue with buying the S&P 500 is that I limit my returns to those of the index. I could be wrong, but by picking individual stocks I might be able to outperform it.

However, this ETF allows me to invest in 500 companies by holding a single share. For me, it’s a low-cost way of diversifying massively across companies and sectors. I’m happy to forgo the possibility of a higher return from investing in individual companies for the ease of this diversification.

Performance and reasoning

In 2021 the share price of this ETF increased by around 30%. However, year to date it’s been a different story. At the time of writing, the fund is down around 5%. That said, it’s already bounced up from its four-month low and is possibly set for a further rise.

If there’s a stock market crash, while some of these companies might take a hit in the short term, they’re very likely to recover. This is because of the S&P 500’s selection criteria. In essence, they must be fundamentally solid with a long history of earning positive average returns.

Indeed, the US index has averaged around 10% returns per year since 1957 and though nothing is certain, I’m hopeful that even after a brief interlude during a market decline, we might see a similar performance.

Also, this fund pays a dividend, which means that even if the share price declines, I’m still earning a return.

All things considered, I believe the ETF could be a strong investment for my portfolio. Even in the case of a stock market crash.


Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Niki Jerath owns shares in Vanguard S&P 500 ETF. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon, Apple, and Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Abstract bull climbing indicators on stock chart
Investing Articles

Could the Chancellor’s Leeds Reforms trigger a bull market for UK stocks?

More competitive lending and greater interest in shares could help kick start growth for UK businesses. But could it also…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

I think this AI stock could double before Palantir

Palantir stock is up almost 100% this year. As a result, it now sports a market cap of $350bn meaning…

Read more »

Elevated view over city of London skyline
Investing Articles

As the FTSE 100 hits an all-time high, is it time to reconsider the S&P 500?

Christopher Ruane explains why a surging FTSE 100 has not yet made him focus more on the potential of S&P…

Read more »

GSK scientist holding lab syringe
Investing Articles

The FTSE 100 sits at a record high. But some stocks still look dirt cheap!

The usually sluggish FTSE 100 is having a surprisingly good year. But our writer feels there are still potential bargains…

Read more »

Close-up of British bank notes
Investing Articles

With a £20k Stocks and Shares ISA, here are 3 ways an investor could target a £2k annual passive income

Our writer thinks there is more than one way to try and skin a cat when it comes to earning…

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

Up 350% in 3 years but my favourite FTSE growth share is still on a low P/E of just 10!

Harvey Jones can't tear his eyes away from this former penny stock turned growth share superpower. But can it carry…

Read more »

Santa Clara offices of NVIDIA
Investing Articles

Up 83% in months, could Micron stock be the next Nvidia?

Chipmaker Micron Technology's stock price has surged by over 80% in just a few months. Could this be a possible…

Read more »

Tesla car at super charger station
US Stock

£1k invested in Tesla stock at the start of the year is currently worth…

Jon Smith reveals the performance of Tesla stock in 2025 and explains why he doesn't believe the move lower is…

Read more »