Understanding the Return on Vanguard SP 500 ETF vs. the SP 500 Index

Investors looking to diversify their portfolios often consider the Vanguard SP 500 ETF (Vanguard SP 500 ETF) as a low-cost, passive investment in one of the world's largest indices. The chart below shows the capital return and total return for the Vanguard SP 500 ETF and the SP 500 Index Benchmark.

Performance Comparison: Capital Return vs. Total Return

The performance of the Vanguard SP 500 ETF is often benchmarked against the SP 500 Index. Two key metrics for comparison are capital return and total return. Capital return, often measured by the Net Asset Value (NAV), is the change in the value of the investment based on its price. Total return includes both the capital appreciation and any dividends or interest paid to the investor.

Year Capital Return (Vanguard SP 500 ETF) Capital Return (SP 500 Index Benchmark) Total Return (Vanguard SP 500 ETF) Total Return (SP 500 Index Benchmark) 2021 26.91% 28.71% 26.91% 28.71% 2020 16.24% 18.40% 16.24% 18.40% 2019 28.82% 31.49% 28.82% 31.49%

From the above data, it is clear that the SP 500 Index slightly outperforms the Vanguard SP 500 ETF in terms of capital return and total return over the last three years. However, mutual performance is not unusual given the passive nature of the Vanguard SP 500 ETF and the SP 500 Index Benchmark.

Is the Vanguard SP 500 ETF Suitable for Your Investment Goals?

The performance of the Vanguard SP 500 ETF has been consistent and steady, and it has the advantage of low management fees. Given that dividends are typically not reinvested in the ETF, the average annual return has been approximately 7 to 8 percent when dividends are not included.

For investors seeking higher returns, they might consider alternatives such as the QQQ ETF (PowerShares QQQ ETF). QQQ is an ETF that serves as a proxy for the NASDAQ-100 Index, which includes a mix of technology and non-tech companies. QQQ has seen an average annual return above 17 percent since its inception, primarily due to the performance of its tech-heavy composition.

Conclusion

Whether the Vanguard SP 500 ETF or other alternative options like QQQ are right for your portfolio ultimately depends on your investment goals and risk tolerance. The Vanguard SP 500 ETF offers a reliable and low-cost investment in the SP 500, while alternatives like QQQ can offer higher but more volatile returns. By carefully considering these factors, you can make an informed decision about which investment is best for you.