The past month hasn't been easy for stock market investors. Indexes have changed directions multiple times, volatility has been high, and some of the market's leading companies have seen their stocks stumble.
What's the reason for the turmoil? Investors, analysts, and economists all have voiced fears about the impact of President Donald Trump's plan to impose tariffs on imports.
Trump announced a sweeping plan early last month, which caused indexes to fall. The tech-heavy Nasdaq Composite even crashed into bear territory and the S&P 500 index temporarily slipped into a bear market. The concern was that higher prices would weigh on the consumer, the general economy, and corporate earnings.
But the president's decision to pause tariffs to allow countries time to negotiate with the U.S. and his temporary halt on tariffs for electronics products offered investors optimism, and indexes rebounded from their lows. At the same time, a top Vanguard fund experienced something you wouldn't expect during a month of market turbulence, and it offers investors a very clear message.
Image source: Getty Images.
Tracking the S&P 500
Here's a look at the fund I'm talking about: the Vanguard S&P 500 ETF(NYSEMKT: VOO), an exchange-traded fund (ETF) that tracks the performance of the S&P 500. The fund, like all ETFs, trades daily on the market just like a stock. But unlike investing in an individual stock, buying this asset doesn't limit your access to only one company's growth. When you buy a share of the Vanguard S&P 500 ETF, you'll gain exposure to all of the companies in that index.
These companies were selected to join the benchmark because they play a significant role in driving today's economy. When you bet on the S&P 500, you're betting on today's leading U.S. companies. Since the index is rebalanced quarterly to potentially add or remove companies, when you invest in the S&P 500, you'll always be invested in the top companies of the times.
Now I'll consider the Vanguard S&P 500 ETF's surprising experience last month. In April, this popular ETF became even more popular. The $608 billion fund recorded the largest monthly inflow in its 15-year history, according to Bloomberg Intelligence. The almost $21 billion taken in also was the fifth-biggest inflow by a fund in a single month.
This happened as the general market -- including the S&P 500 -- experienced high volatility and investors worried about the economy ahead. Against that sort of backdrop, you might expect a fund tracking the S&P 500 to see a slowdown in inflows.
What history has demonstrated
What does this mean for investors? The message is very clear. It shows that, though some investors might be shying away from stocks, a great number of long-term investors are piling in and believe the S&P 500 will do what it's done throughout history after challenging periods: gain.
The S&P 500, along with the Nasdaq and the Dow Jones Industrial Average, always have gone on to win over the long term after various difficult moments -- from market crashes to recessions. The chart below shows the performance of the indexes over the past 25 years -- with the shaded area indicating U.S. recessions -- and offers us a glimpse of this.
Today, long-term investors may feel particularly comfortable betting on the S&P 500 because it encompasses many companies across industries. The massive inflow seen by the Vanguard ETF shows that, though the near-term may be uncertain, investors haven't lost faith in the market's ability to recover and grow. In fact, the recent inflow suggests that many investors took advantage of recent stock and ETF declines to get in on the market at a lower price.
This is great news because it means investors aren't fleeing the market and are confident about prospects over the long term. That should comfort you as you continue on your investing journey -- and even inspire you to add a few shares of the Vanguard S&P 500 ETF to your holdings as a way to get in on the broader index's recovery and growth over time.
Should you invest $1,000 in Vanguard S&P 500 ETF right now?
Before you buy stock in Vanguard S&P 500 ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard S&P 500 ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider whenNetflixmade this list on December 17, 2004... if you invested $1,000 at the time of our recommendation,you’d have $611,589!* Or when Nvidiamade this list on April 15, 2005... if you invested $1,000 at the time of our recommendation,you’d have $697,613!*
Now, it’s worth notingStock Advisor’s total average return is894% — a market-crushing outperformance compared to163%for the S&P 500. Don’t miss out on the latest top 10 list, available when you joinStock Advisor.
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
