The S&P 500 Is 3% Below Its Record. Should You Buy Vanguard's Index Fund Now, or Wait for a Correction?

The S&P 500 (SNPINDEX:^GSPC) set its most recent record close on Aug. 13, finishing that session at 7,798.99. The index has slipped since then, and as of this writing, it sits about 3% below that mark.

For anyone holding cash, the slide raises a fair question. Is a 3% discount reason enough to buy the Vanguard S&P 500 ETF (NYSEMKT:VOO) now? Or is the smarter move to wait for a deeper pullback?

Missed AI's "Act 1"? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we're only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue »

Not only did the fund become the first exchange-traded fund to surpass $1 trillion in assets in June, but it also took in about $69 billion of new money this year through early June. It owns the more than 500 stocks in the index it tracks (growth stocks and value stocks alike), charges a 0.03% expense ratio, and a single share costs around $693 as of this writing.

Here's what history says about buying this close to a record.

Image source: Getty Images.

Buying at record highs has paid off

A market within a few percentage points of its all-time high can feel like a market that has run out of room. History suggests otherwise.

JPMorgan Chase put numbers on this in a 2020 analysis of S&P 500 returns going back to the start of 1988. Investors who bought the index on a random day, reinvesting all dividends, made money over the following year 83% of the time, with an average 12-month total return of 11.7%. Investors who bought only on days the index closed at an all-time high did better on both counts. Those purchases made money over the following year 88% of the time, and the average return was 14.6%.

The pattern is less strange than it sounds. Bull markets tend to run in stretches, so an index strong enough to set one record has often been strong enough to keep setting them. And the study found the same pattern held over three-year and five-year holding periods.

In other words, the entry point that feels riskiest (the record close itself) has historically beaten the average day. Buying 3% below a record is, I'd argue, the same trade with a small head start.

To be fair, deeper declines come along regularly. Fidelity examined S&P 500 drops from 1980 through 2025 and found declines of 5% or more in 93% of calendar years. Drops of 10% or more (the standard definition of a correction) showed up in 48% of those years -- essentially every other year.