The Common S&P 500 ETF Mistake That’s Quietly Costing Investors Money

The Vanguard S&P 500 ETF is one of the most popular investments in the country, with more than $1 trillion in assets and an expense ratio of just 0.03%.

Buying the S&P 500 is the easy part, while the real test of your financial fitness comes from what you do afterward, because the most common mistake investors make with this fund has everything to do with panicking during a downturn and selling at exactly the wrong moment.

VOO gives you the entire large-cap market for almost nothing

Vanguard S&P 500 ETF (NYSEARCA:VOO) holds all 500 companies in the S&P 500 Index, giving you broad exposure to the largest U.S. stocks through a single fund. The expense ratio of 0.03% means you pay roughly $3 a year for every $10,000 invested, according to Vanguard.

The simplicity is the selling point, since you buy one fund, let the broad market do the work, and collect quarterly dividends along the way. The difficult part is resisting the urge to sell when your holdings drop 10% or more over a matter of weeks.

Selling after a drop locks in the very losses you feared

The pattern tends to repeat during every downturn. Prices fall, headlines turn negative, and investors sell to protect what remains. Selling after a decline converts an unrealized paper loss into a permanent one, though, and you lock in the drop for good.

Investors who bail out during a sell-off often wait for the market to feel stable before buying back in, which means they miss the initial rebound. You end up selling low and re-entering higher, the exact opposite of what long-term investing requires.

Missing the best trading days has historically cut returns in half

J.P. Morgan Asset Management found that staying fully invested in the S&P 500 over the past 20 years would have delivered an average annualized return of about 10.3%, and missing just the 10 best trading days during that stretch would have cut your return nearly in half.

The timing of those best days is what makes market timing so risky. Missing just the 10 best trading days for the S&P 500 over a 20-year stretch reduces your overall portfolio return by 10.6%. Pulling your money out during the scariest moments means you are also likely to miss the strongest rebounds that tend to follow.

A 10% correction shows up in roughly half of all years

Drops of 10% or more are not rare events. Fidelity's research, using data through December 2025, shows just how routine they are:

• The S&P 500 experienced a drop of 5% or more in 93% of calendar years since 1980.
• A decline of 10% or more occurred in 48% of those years.
• Despite those frequent declines, the average calendar-year return was still about 13.3%.

Even with all those pullbacks, most calendar years ended in positive territory, and the average intra-year drawdown has been roughly 14% since 1980.

The 2024 behavior gap cost the average investor thousands

DALBAR, an independent financial research firm, found that the average equity fund investor earned just 16.54% in 2024 while the S&P 500 returned 25.02%, a gap of 8.48 percentage points that was the second largest of the past decade, according to DALBAR's Quantitative Analysis of Investor Behavior report.

In dollar terms, a $100,000 portfolio tracking the index would have grown to about $125,020 that year. An investor who traded in and out based on emotion would have ended with roughly $116,540, missing out on more than $8,000 in a single year.

In 2025 the gap narrowed, but the long-term trend persists

DALBAR's 2026 edition of the report showed a notably smaller gap for 2025. The average equity investor earned 17.16% compared with the S&P 500's 17.88%, a difference of just 0.72 percentage points, the lowest gap since 2012, according to DALBAR.

One strong year does not erase decades of evidence, though. Over the 20-year period ending December 2024, the average equity fund investor earned about 9.24% annually while the S&P 500 returned 10.35%, according to DALBAR's data. Compounded over two decades, that annual gap becomes a meaningful difference in total wealth.

Every correction feels unique, but the investor mistake is the same

A 10% decline tied to interest rates feels different from one triggered by a geopolitical crisis, even though your portfolio does not distinguish between the two. Every sell-off comes with a narrative that makes the current downturn feel different.

The S&P 500 delivered three consecutive years of double-digit gains heading into 2026, with returns of roughly 24% in 2023, 23% in 2024, and 16% in 2025, according to CNBC. Each of those years included stretches of sharp declines that tempted investors to sell. The ones who stayed invested captured those full-year gains.

Staying invested has historically been the winning approach

Holding through every downturn does not feel comfortable, especially as you watch your portfolio drop 15% or 20%. The strategy works precisely because most people find it emotionally difficult.

Fidelity, J.P. Morgan, and DALBAR have each studied decades of market data, and the takeaway is consistent. Investors who stayed fully invested in the S&P 500 earned meaningfully more than those who moved in and out based on short-term conditions.

Bottom line

VOO and similar S&P 500 index funds have historically rewarded investors who bought and held through the ups and downs. The biggest drag on your returns likely is not the fund itself, but the decision to sell during a downturn and buy back after the recovery has already started.

Tracking your portfolio alongside must-have investing apps is useful, but the data covered here suggests the bigger edge comes from resisting the urge to act during a downturn.