Holding VOO over 10 years is the investment worth doing, and you should do it too!
But you may wonder, what are the benefits and intentions to do so, after all, it’s not an easy thing.
I know some people may have concerns about this, so today, let me share my experience and my acknowledgment, tell you why you should do this with 5 reasons, you will have a better and clear idea, making you confident to do it, and get more wealth from it.
VOO can give you the most profit over time
The first reason is, VOO can give you the most profit in the long run, if you can hold it patiently.
We can view it from 3 aspects, they are performance, returns after 10 years, and its cost.
Its performance
Let’s review its performance first.
According to the statistics by Yahoo!Finance, as of July 11, 2024, all period performance is as following:
If we look at the 10-year performance, the annual return is 12.82%, which means your VOO asset grows 12.82% each year in the last 10 years.
It looks perfect, right? You can earn more than 10% a year!
But some people say it’s too optimistic, they want to see the longest return.
No problem, let me show this.
Once again, we use Yahoo!Finance’s chart to find the longest return, as follow:
The earliest available data from the chart is Nov. 1, 1933, so we start from here, calculate the yearly average return on price, and here’s the result:
| S&P 500 | |
| Open from Nov. 1, 1933 | 9.12 |
| Close on Jul. 11, 2024 | 5,633.91 |
| Years Passed | 90.75 |
| Surge multiplier | 617.75 |
| Yearly return | 7.34% |
So here, we get the longest yearly return, 7.34%!
What does it mean? If you buy the S&P 500 from 1933, after experiencing many drawdowns and crashes, your money still grows 617.75 times, or 7.34% per year.
And this is the most conservative calculation.
The compounding returns after 10 years
Now let’s see what will happen if you hold it after 10 years.
Here’s a simple case. Assume we invest VOO from now with $10,000, if using the most conservative yearly return 7.34%, after 10 years, it will grow to $20,306, double than your cost.
A little bit less than your anticipation, right? Afterall, we use the most conservative figure to calculate, so the result is not as big as you think.
But in reality, it’s more than your anticipation.
Here’s the actual result of VOO is the last 10 years:
If we apply the same case since 2014, at the end of 2023, the $10,000 expends to $31,028, 3 times more than our cost.
If count 2024’s result in, it will be $35,766.
So, no matter in simulation and actual case, the growth of VOO is by 2x and 3x in 10 years, that’s a good result for us!
If we hold it more longer, the result will be higher than we thought. I will talk about it in a later article.
Low costs
Except for the return, the cost is also a component for our long-term profit.
As for ETFs, it’s unavoidable to have some cost when investing, as the fund issuer needs cost to maintain its operation.
But you may wonder, how does the issuer charge us these costs?
The answer is from our profit.
For example, if we have VOO that values $10,000, with its expense rate 0.03%, at the end of year, the cost will be reflected on the value, so VOO will be $9,997.
The cost is reflected on the net present value, not market price we can see, so most of us don’t feel that we’re charged for these prices.
Nevertheless, it still has some impact on our profit, so the lower the cost rate, the more we can retain our earnings.
Buying VOO can enjoy this effect, like the case we mentioned.
VOO has the lower risk, with its diversification and stability
Second, VOO has the lower risk, with its diversification and stability.
In other words, VOO’s risk is the marker averaged risk, and it’s the level that every investor is bearing.
But how does VOO reach it? Here’s how it works:
How does VOO diversify?
Let’s dig in with its diversity first.
As an index ETF, VOO contains all of the industries, based on the market value of the listed corporation.
According to Vanguard’s latest static, as of May 31, 2024, the weights on each industrials are as following:
Information technology is the biggest sector of VOO, over 30%. However, other sectors, like Financial, Health Care, Customer Discretionary and Communication Service, also have around 10% weights.
That means, the performance of VOO does not just rely on Information technology, but also other industries, making it work more balanced.
Of course, the market value is the only criteria for the change of weight.
With diversification, risk is lower to normal level and more stable
VOO is composed of 500 stocks from all kinds of industries, so the risk is distributed to all of these stocks.
In other words, it’s safer to hold VOO than buy individual stock.
Also, comparing to stock or other ETFs, VOO is much stable, means VOO do not fluctuate so much,
as its price change is decided by the 500 components, not go too fast, but also not fall so quickly, making us more comfortable to hold it long.
Reinvest dividend in VOO, enlarge potential growth
Third, you can reinvest your received dividend, if you don’t need it, to enlarge our potential growth on assets.
In addition to the price change on VOO, its dividend is also an important source to boost our profit.
By reinvesting dividends, the share purchased can still grow with the market, and then generate more dividends. After repeating these cycles for years, it can be a tremendous amount.
Now let’s review how it works.
What’s the dividend yield of VOO?
First, we need to know how much dividend VOO can provide.
According to the data from Nasdaq, in the last 5 years, VOO distributed around $5.3 ~ $6.3 per year. Considering the stock price effect, the yield was 1.2% ~ 1.5% on average.
What’s the effect on reinvestment?
Now, let’s see how reinvestment can boost your profit.
Assume we invest VOO 10 shares at $353.18 at the beginning of 2023, so our cost is $4,000.
Applying the schedule of 2023, the effect will be as below:
| Date | Shares | Total Cost | Dividend received | Shares Purchases | Total shares | Market price at dist. date | Total Market Value |
| 2023/1/1 | 10.0000 | 3,531.80 | |||||
| 2023/3/31 | 10.0000 | 3,531.80 | 10.41 | 0.0283 | 10.0283 | 368.69 | 3,697.33 |
| 2023/6/30 | 10.0283 | 3,541.83 | 11.06 | 0.0273 | 10.0556 | 407.15 | 4,094.14 |
| 2023/9/30 | 10.0556 | 3,551.88 | 10.51 | 0.0269 | 10.0825 | 387.39 | 3,905.86 |
| 2023/12/31 | 10.0825 | 3,561.97 | 12.71 | 0.0292 | 10.1117 | 437.10 | 4,419.82 |
Among the market value at year end, it can split with following:
| Total Market Value | |
| From origin shares purchased | 4,371.00 |
| From dividend reinvestment | 48.82 |
Looks like the effect is not good, right?
This is the only one time investment, so the dividend received is not so much, hence the effect is not good.
However, if we keep buying shares each month, as the shares grow, the more dividends we can receive, hence the effect will be more obvious.
Ease of Investment
The fourth reason is, its ease of investment, can let you do it longer.
First, you don’t need to take much time on researching and investigation, just move your finger, then it’s completed.
All of these just take you no more than 5 minutes, no other action needed, just keep patient, and check your deposit balance periodically.
The more simple processes, the longer we can hold it.
Afterall, the ETF’s value can be reflected via the mechanism of the market automatically, you don’t have to investigate which stock is good, which one is bad, or how to adjust your allocation in your portfolio.
All you need to do is buy and hold it, it’s so simple.
Expert Endorsements
Finally, such an investment method is endorsed by many experts, including Warren Buffett.
He had said “In my view, for most people, the best thing to do is own the S&P 500 index fund,” , and he also owns over 43,000 shares on VOO.
And, the founder of Vanguard, John Bogle, also advocated that the index fund is worth holding longer, with its low cost and ease to invest, such a fund is more suitable for everyone to invest. Nowadays, such a fund has evolved to an ETF’s form, that is VOO.
I had recently read “Just Keep Buying: Proven ways to save money and build your wealth” by Nick Maggiulli. In this book, he had many experiences, and proved that keeping investing in such ETFs can indeed increase our wealth.
No matter from legendary investor, and scientist experiments, investing in VOO long is worth doing it, and our wealth can grow in unexpected ways.
If you can accept the 5 reasons above, I believe that via investing over 10 years, you will have amazing results, and get your life better and easier.