The S&P500 (SNPINDEX: ^GSPC) fell as much as 25% in 2022 as runaway inflation and rising interest rates weighed on the stock market. Against that backdrop, Fundstrat Global Advisors’ Tom Lee turned heads when he predicted the index would rise 24% in 2023, despite the growing risk of a recession.
Lo and behold, his estimate was the most accurate on Wall Street. The S&P 500 rose 24.2% in 2023 as market sentiment was revived by economic resilience and enthusiasm around artificial intelligence. Of course, one good prediction doesn’t mean Lee has a crystal ball, but it does give credit to his latest prediction.
More specifically, Lee recently told Bloomberg that the S&P 500 could reach 15,000 by 2030 as demand for artificial intelligence ripples through the economy. That implies an increase of 174% from the current level of 5,465, equivalent to an annual return of 16.7% until the end of the decade.
Investors can take advantage of that opportunity by purchasing shares of an S&P 500 index fund such as the S&P 500 Index Fund Vanguard S&P 500 ETF (NYSEMKT: VOO). Read on for more information.
The Vanguard S&P 500 ETF can help investors capitalize on artificial intelligence
The Vanguard S&P 500 ETF tracks the performance of 500 major US companies. The index fund is diversified across value and growth stocks from every market sector, covering approximately 80% of domestic equities and more than 50% of global equities by market capitalization.
In short, the Vanguard S&P 500 ETF allows investors to diversify their money across many of the world’s most important companies. The ten largest positions in the index fund are shown below by weight.
-
Microsoft: 6.9%
-
Apple: 6.3%
-
Nvidia: 6.1%
-
Alphabet: 4.2%
-
Amazon: 3.6%
-
Metaplatforms: 2.3%
-
Berkshire Hathaway: 1.7%
-
Eli Lilly: 1.5%
-
JPMorgan Chase: 1.3%
-
Broadcom: 1.3%
According to FactSet Research, a record 199 companies in the S&P 500 discussed artificial intelligence (AI) on their latest earnings calls. Many of them will benefit from AI in the coming years, but they will do so in different ways.
For example, some companies will monetize AI in open ways, such as designing specialized chips, offering cloud services, and injecting intelligence into consumer products. But other companies will monetize AI in subtle ways, such as automating behind-the-scenes processes to improve productivity.
The S&P 500 has been a profitable investment for long periods of time
Every investment in the stock market involves risks. But buying shares of an S&P 500 index fund has traditionally been a reliable way to make money in the stock market over long periods of time. In fact, the chance of a positive return increases as the investment period increases.
Based on 1928 data, investors who bought and held an S&P 500 index fund (or its equivalent) profited for 89% of five-year periods, 94% of 10-year periods, and 100% of 20-year periods . And profits have generally been robust.
The S&P 500 has delivered a supercharged return of 2,050% over the past thirty years, which equates to an annual return of 10.7%. At that rate, the $400 per month (less than $100 per week) would grow to more than $1 million over the next three decades.
Investors should expect to pay a premium for these returns. But the Vanguard S&P 500 ETF has a below-average expense ratio of 0.03%, meaning investors pay just $0.30 per year for every $1,000 invested in the index fund.
The S&P 500 may not reach 15,000 in 2030, but the Vanguard S&P 500 ETF is still a smart investment
The S&P 500’s earnings per share – the total profits of all 500 companies divided by the divisor used to calculate the index – have risen 7% annually over the past decade. Meanwhile, the S&P 500 advanced 158% and achieved an annualized price return (which means dividends are excluded) of 9.9% during that period.
It goes without saying that earnings growth must accelerate in the coming years if the S&P 500 wants to achieve an annual return of 16.7% until 2030. To hold the underlying price-to-earnings ratio constant, the S&P 500’s earnings growth would need to accelerate by about 7 percentage points. I doubt AI can make that possible.
Indeed, Goldman Sachs estimates that AI will increase U.S. economic output by 1.5% annually over the next decade. That’s impressive, but probably not impressive enough to accelerate the S&P 500’s earnings growth by 7 percentage points. Therefore, Tom Lee’s price target of 15,000 units by 2030 seems overly optimistic.
Either way, the Vanguard S&P 500 ETF is a worthwhile long-term investment. It offers investors the opportunity to spread money across hundreds of influential companies, many of which will undoubtedly benefit from AI. And the S&P 500 has historically been a reliable moneymaker for patient investors.
Should you invest $1,000 in the Vanguard S&P 500 ETF now?
Consider the following before buying shares in Vanguard S&P 500 ETF:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Vanguard S&P 500 ETF wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $775,568!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns June 24, 2024
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Trevor Jennevine has positions in Amazon, Nvidia and Vanguard S&P 500 ETF. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Goldman Sachs Group, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
1 Supercharged Vanguard Index Fund to Buy Before It Surges 174%, According to a Wall Street Analyst, originally published by The Motley Fool
