How to Build a Retirement Portfolio Around a Single ETF: The Case for VOO

Building a retirement portfolio around a single exchange-traded fund (ETF) may seem overly simplistic in a world of complex financial products. However, for long-term wealth accumulation, simplicity often trumps complexity. The Vanguard S&P 500 ETF (VOO) stands out as a compelling candidate for such a strategy, offering broad diversification, low costs, and a track record of compounding returns. This article examines how investors can leverage VOO to construct a retirement portfolio centered on long-term growth and the power of compounding, while addressing key considerations like inflation, volatility, and dividend reinvestment.

Historical Performance and Volatility: A Foundation for Long-Term Growth

VOO, which tracks the S&P 500 Index, has delivered a compound annual return of , despite a standard deviation of 15.18%, reflecting its inherent volatility. Recent performance has been particularly robust, with returns of 23.35% in 2024 and 16.39% in 2025, underscoring the index's ability to recover from downturns and generate growth during favorable cycles. Over the past three decades, VOO has posted positive returns in , a statistic that highlights its resilience across economic cycles.

While these figures are impressive, they also reveal a critical nuance: long-term success with VOO requires patience. For instance, -where inflation-adjusted returns for the S&P 500 were flat or negative. This underscores the importance of a disciplined, buy-and-hold approach, as market cycles can test even the most seasoned investors.

The Power of Dividend Reinvestment and Compounding

One of VOO's most compelling features for retirement portfolios is its dividend-paying structure. As of May 2025, VOO offers a trailing 12-month dividend yield of , with quarterly payouts that investors can reinvest to accelerate compounding. Research indicates that , making this practice a cornerstone of wealth accumulation.

For example, over the past decade (2015–2025), VOO's total annual return-including reinvested dividends-averaged , significantly outpacing its price return alone. This compounding effect becomes even more pronounced over decades, as reinvested dividends generate additional shares, which in turn produce more dividends.

However, VOO's dividend yield is relatively modest compared to high-dividend ETFs like the Schwab U.S. Dividend Equity ETF (SCHD) or the iShares Core High Dividend ETF (HDV), , respectively. While these alternatives may appeal to retirees prioritizing income, they often sacrifice diversification and growth potential. For investors focused on long-term capital appreciation, VOO's balance of growth and income remains superior.

Navigating Inflation and Market Cycles

A common concern with equity-based portfolios is inflation. While VOO's returns are not inherently inflation-protected, the compounding effect of reinvested dividends can mitigate this risk over time. For instance, during periods of high inflation, companies in the S&P 500-many of which are industry leaders-often raise prices or invest in productivity to maintain margins, indirectly preserving purchasing power.

That said, investors must remain mindful of market timing. Prolonged periods of flat or negative real returns, as seen in historical data, emphasize the need for regular contributions and a long-term horizon. By consistently adding to VOO holdings-regardless of short-term volatility-investors can harness dollar-cost averaging and reduce the impact of market fluctuations.

Strategic Considerations for Retirement Portfolios

For those aiming to accumulate $1 million in retirement, a VOO-centric strategy offers a clear path. Assuming an average annual contribution of $10,000 and a 10% annual return (net of fees), an investor starting at age 30 could reach this goal by age 65. This calculation assumes reinvested dividends and a disciplined approach to regular investing, both of which are hallmarks of VOO's appeal.

Critically, VOO's low expense ratio of ensures that fees do not erode returns, a key advantage over actively managed funds. Its broad exposure to 500 large-cap U.S. companies also minimizes idiosyncratic risk, making it a stable core holding for retirement portfolios.

Conclusion: A Timeless Case for VOO

While no single ETF is a panacea, VOO's combination of low costs, diversification, and compounding potential makes it an ideal foundation for long-term retirement planning. By reinvesting dividends, maintaining a disciplined investment schedule, and accepting short-term volatility, investors can harness the S&P 500's historical growth trajectory. For those seeking simplicity and resilience in their retirement portfolios, VOO offers a compelling, data-backed solution.