How to invest in the Vanguard S&P 500 ETF wisely?

The Vanguard S&P 500 ETF tracks the performance of the S&P 500 Index, investing wisely in the Vanguard S&P 500 ETF (VOO) can be a great way to explore the stock market.

Vanguard's Five Birds of a Feather for 2025

The five Vanguard ETFs I'm especially bullish about for next year are birds of a feather:
Vanguard Small-Cap ETF (NYSEMKT: VB)
Vanguard Small-Cap Value ETF (NYSEMKT: VBR)
Vanguard S&P Small-Cap 600 ETF (NYSEMKT: VIOO)
Vanguard Russell 2000 ETF (NASDAQ: VTWO)
Vanguard Russell 2000 Growth ETF (NASDAQ: VTWG)

You might have spotted the key common denominator for these funds: They all focus on small-cap stocks. The first three even have "small-cap" in their names. The names of the last two ETFs also provide a big hint about their investment strategies with references to the Russell 2000 index, which includes small-cap stocks.

Each of these Vanguard ETFs has performed well this year, although none has delivered returns as high as the S&P 500. The Vanguard Russell 2000 Growth ETF is the biggest winner of 2025 in the group, trailing a few percentage points behind the S&P 500.

Another commonality between these Vanguard ETFs is their low costs. Their annual expense ratios range from 0.05% for the Vanguard Small-Cap ETF to 0.15% for the Vanguard Russell 2000 Growth ETF.

Each ETF also owns a large number of stocks. The Vanguard Small-Cap Growth ETF ranks at the bottom of the list on this front with 603 stocks. The Vanguard Russell 2000 ETF owns the most stocks (1,995).

The main differences between these ETFs are their underlying indexes. The Vanguard Small-Cap ETF and the Vanguard Small-Cap Value ETF use CRSP small-cap indexes. The Vanguard S&P Small-Cap 600 ETF uses the S&P 600 Small-Cap Index. The Vanguard Russell 2000 ETF and the Vanguard Russell 2000 Growth ETF obviously use the Russell 2000 indexes. One of these ETFs focuses on small-cap growth stocks (the Vanguard Russell 2000 Growth ETF), while one focuses on small-cap value stocks (the Vanguard Small-Cap Value ETF).

Why these Vanguard ETFs Could Outperform the S&P 500

I think these five Vanguard ETFs could trounce the S&P 500 in 2025 for one simple reason: Small-cap stocks are poised to outperform large-cap stocks. Here's why:
Valuation Gap: There is a significant valuation gap between small-cap and large-cap stocks. The S&P 500 trades at nearly 27 times earnings, whereas these Vanguard ETFs sport much lower earnings multiples. Historically, small-cap stocks have outperformed large-cap stocks over the long term, and I expect a reversion to the mean with small-cap stocks delivering higher returns.

Interest Rate Cuts: The Federal Reserve has begun lowering interest rates, and small-cap stocks tend to respond more positively to rate cuts than large-cap stocks do.

Trump Administration Policies: The policies of the incoming Trump administration could benefit small-cap stocks, particularly deregulation, which should be welcome news for companies of all sizes, but could help smaller companies the most.

While there could be obstacles along the way, such as economic downturns or the AI boom favoring large-cap stocks, I believe the odds are in favor of these five Vanguard small-cap ETFs beating the S&P 500 next year.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.