The S&P 500 has reached record highs, driven largely by the transformative influences of artificial intelligence (AI). This stock market index, featuring 500 companies across 11 sectors, has seen a year-to-date gain of 17%, significantly surpassing its historical average annual return of 10.5% since its inception in 1957.
The recent surge can be attributed to significant advancements in technology, particularly in AI, which has generated substantial value for major companies within the index. One of the prominent options for investors looking to capitalize on this growth is the Vanguard S&P 500 ETF, which mirrors the performance of the S&P 500 by investing in the same stocks.
The index’s composition is dominated by market capitalization, making the technology sector particularly influential due to its representation of some of the world’s biggest companies, such as Nvidia, Microsoft, and Apple, collectively worth approximately $12.9 trillion. As of late 2025, the sectoral breakdown of the S&P 500 is as follows:
- Information Technology: 35.6% (Prominent stocks include Nvidia, Microsoft, Apple)
- Financials: 13% (Berkshire Hathaway, JPMorgan Chase, Visa)
- Consumer Discretionary: 10.4% (Amazon, Tesla, Home Depot)
- Communication Services: 10.2% (Alphabet, Meta Platforms, Netflix)
- Healthcare: 9.1% (Eli Lilly, Johnson & Johnson, Intuitive Surgical)
Despite the diversification of the index across various sectors including industrials, consumer staples, energy, utilities, real estate, and materials, the technology sector’s impact remains pronounced. A recent analysis revealed that past performance of the S&P 500 would have been significantly lower without the contributions from technology stocks.
Looking forward, the tech sector is expected to continue driving returns, spurred by projections that AI could generate trillions in value over the coming years. Nvidia’s CEO has indicated that data center operators may invest up to $4 trillion to adapt their infrastructures to meet AI demands by 2030, while Ark Invest forecasts a $13 trillion market opportunity associated with AI advancements over the same timeframe.
Investing in the Vanguard S&P 500 ETF provides significant exposure to these potential gains, coupled with the advantages of diversification. Moreover, the fund is highly cost-effective, boasting an expense ratio of just 0.03%. This means a $10,000 investment would incur an annual fee of only $3.
Historically, the S&P 500 has shown a tendency to trend upward over the long term, delivering a 10.5% compound annual return since 1957, despite fluctuating through various economic cycles. Volatility is an established characteristic of the investing landscape, with annual declines averaging 5% and bear markets occurring roughly every six years.
The last bear market was observed in 2022, suggesting that unless unexpected economic turbulence arises, the current upward trend may continue. However, experts caution that the S&P 500’s current valuation appears elevated, potentially leading to a period of underperformance.
While it may seem risky to invest during a market high, long-term investors are generally advised to maintain a proactive approach. Instead of committing a large sum at once, a strategic method might involve making smaller, incremental investments over time. This approach allows investors to gradually increase their holdings while possibly benefiting from future price corrections, ultimately lowering their overall cost basis.
