The best S&P 500 Index funds are generally those that have the lowest expense ratios. However, in addition to low costs, there is a delicate balance of science and art to indexing that makes only a few mutual funds and ETFs qualify to make our list ofthe best index funds. Learn how index funds work and how to choose the best index funds for your portfolio.
Key Takeaways
- S&P 500 index funds are mutual funds or ETFs that track the Standard and Poor's index of the 500 largest U.S. companies.
- The best S&P 500 index funds have low expenses and high assets under management, and they closely track the index.
- Vanguard, iShares, and SPDR all have strong S&P 500 index funds.
- S&P 500 index funds are often good core holdings for your portfolio, but they are not always the best choice for all investors.
What Are S&P 500 Index Funds?
S&P 500 index funds are mutual funds or exchange-traded funds (ETFs) that passively track the Standard and Poor's 500 index. This index represents approximately 500 of the largest U.S. companies, as measured by market capitalization. This means that the largest companies receive the highest allocation in the index.
How To Find the Best S&P 500 Index Funds
There are three primary qualities to look for when searching for the best S&P 500 index fund to buy:
- Low expenses
- Performance that closely tracks the index
- High assets under management
Look for the Lowest Expense Ratios
Keeping investment costs low may be the most important aspect of index fund investing, especially when comparing funds that track the same index. The funds with the lowest expense ratios generally generate the best returns over time.
For example, if an index fund has an expense ratio of 0.50%, but a fund that tracks the same index has an expense ratio of 0.10%, the latter fund has 0.40% advantage over the one with the higher expense ratio.
Look for S&P 500 Index Funds with High AUM
In the indexing world, size can matter. An index fund with high assets under management (AUM) is not only an indication of quality but also an advantage, especially when it comes to liquidity in ETFs. Low AUM can translate to wider swings in the so-called bid/ask spread. This increases price volatility, which can be a disadvantage for investors.
Look for Low Index Tracking Error
The objective of an S&P 500 Index fund is not to "beat the index" but to match it, which means that the fund will attempt to replicate the performance of the index. To do that, put simply, the fund will hold the same stocks found within the S&P 500. Therefore, the best stock index funds will do a good job of matching the list of stocks (holdings) represented in the benchmark index. Stock analysts may call this "low tracking error."
The3 Best S&P 500 Index Funds
Now that you know what it takes to make the best index funds, you can select the best S&P 500 index funds for your portfolio:
- The Vanguard 500 Index (VFIAX):The first index fund available to individual investors, Vanguard's 500 Index fund is the indexing pioneer. Investors who want to use a mutual fund to invest in the S&P 500 are a good fit for using VFIAX. Fortunately, Vanguard made VFIAX, its Admiral Shares fund, available to investors. This share class has a lower expense ratio (0.04%) than the older Investor Shares fund.
- The SPDR S&P 500 (SPY): This was the first ETF listed in the United States (January 1993). At $258 billion in AUM, it's also among the largest ETFs trading on the market today. Rounding out SPY's attractive qualities, the expense ratio is low at 0.0945%.
- The iShares Core S&P 500 (IVV):This ETF combines the attractive qualities of high assets under management ($177 billion) and very low expenses (0.03%). Investors who want to focus on the low expense ratio can be a good match for IVV.
Bottom Line
The best S&P 500 index funds are generally those with the lowest expense ratios. However, investors are wise to watch for other qualities, such as assets under management, past performance, and tracking error. S&P 500 index funds can make good core holdings in a portfolio, but they might not be right for all investors.
Frequently Asked Questions (FAQs)
What is the correlation coefficient between the S&P 500 and an index mutual fund?
In theory, an S&P fund should have a perfect positive correlation of one, which means the fund and index perform identically. However, while funds have a very high correlation coefficient, it is not a perfect correlation. Dividends, expense fees, and intraday trading on exchanges are just a few of the factors that can cause a fund's performance to vary slightly from the S&P 500 index. Comparing tracking errors is the best way to find the fund with the highest correlation coefficient.
Why should I invest in an S&P 500 fund?
S&P 500 funds are popular because it is perhaps the easiest way to build a diverse U.S. equity portfolio. Historically, the S&P 500 index has offered investment returns with a consistency that is nearly impossible to beat, even among professional traders. An S&P fund offers exposure to this index with a single trade that can be filled out with just a few clicks or taps.
Note: The Balance does not provide tax, investment, or financial services and advice. The information is being presented withoutconsideration of the investment objectives, risk tolerance, or financial circ*mstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.
FAQs
Top S&P 500 index funds in 2024
| Fund (ticker) | 5-year annual returns | Expense ratio |
|---|
| Vanguard S&P 500 ETF (VOO) | 14.5% | 0.03% |
| SPDR S&P 500 ETF Trust (SPY) | 14.5% | 0.095% |
| iShares Core S&P 500 ETF (IVV) | 14.5% | 0.03% |
| Schwab S&P 500 Index (SWPPX) | 14.5% | 0.02% |
4 more rowsApr 5, 2024
Consider looking for S&P 500 index funds with low expense ratios, several years of operation and a healthy amount of assets under management (AUM). The longer a fund has existed, the more information you have about its performance history.
Is VTI or VOO better? ›
VTI is a total U.S. market fund and holds more than 3,500 stocks. VTI is better diversified and benefits from small and mid-cap stocks that grow into large caps. VOO is less diversified, tracking the performance of the S&P 500 Index. VOO excludes small and mid-cap stocks.
Is FXAIX better than VOO? ›
While the difference in dividend yield is quite small, the difference is larger than the difference in total returns. Between 2015 and 2017, FXAIX had the largest difference in dividend yield with an average outperformance of 0.50%. But, from 2021 to 2023, FXAIX and VOO have an identical performance.
Which index fund gives the highest return? ›
List of Best Index Funds in India Ranked by Last 5 Year Returns
- HDFC Index S&P BSE Sensex Fund. ...
- Tata S&P BSE Sensex Index Fund. ...
- UTI Nifty200 Momentum 30 Index Fund. ...
- HSBC Nifty 50 Index Fund. ...
- Mirae Asset NYSE FANG+ ETF FoF. ...
- Motilal Oswal Nifty Midcap 150 Index Fund. ...
- Mirae Asset Equity Allocator FoF. ...
- Axis Nifty 100 Index Fund.
Because nearly all S&P 500 index funds perform very similarly, it's important to pick a fund with the lowest possible expense ratio. Minimum investment. Index funds have different investment minimums, whether you purchase them for taxable investment accounts or tax-advantaged retirement accounts.
Which S&P index fund does Warren Buffett recommend? ›
He owns a small bit of each in his portfolio for Berkshire, too. The two investments held in Berkshire Hathaway's portfolio that Buffett recommends more than anything else are two S&P 500 index funds. The SPDR S&P 500 ETF Trust (NYSEMKT: SPY) and the Vanguard S&P 500 ETF (NYSEMKT: VOO). Image source: The Motley Fool.
Is SPY or VOO better? ›
Both VOO and SPY are index funds based on the S&P 500. Stock holdings and sector allocations are nearly identical. Performance is also nearly identical, but the VOO has slightly outperformed the SPY over the long term. Both funds are easily available at popular investment brokers and through robo-advisors.
What is the S&P 500 for dummies? ›
What does the S&P 500 measure? The S&P 500 tracks the market capitalization of the roughly 500 companies included in the index, measuring the value of the stock of those companies. Market cap is calculated by multiplying the number of stock shares a company has outstanding by its current stock price.
What is the 10 year return on VOO vs VTI? ›
Average Return
Over the past 10 years, VOO has had annualized average returns of 12.52% , compared to 11.91% for VTI.
Or, you could also invest in both, for example, by putting half in VOO and half in VTI. Here's a summary of which one to choose: If you want to own only the biggest and safest stocks, choose VOO. If you want more diversification and exposure to mid-caps and small-caps, choose VTI.
Should you buy VOO now? ›
VOO's analyst rating consensus is a Moderate Buy. This is based on the ratings of 505 Wall Streets Analysts.
Is qqq better than VOO? ›
Average Return
In the past year, QQQ returned a total of 39.12%, which is significantly higher than VOO's 27.70% return. Over the past 10 years, QQQ has had annualized average returns of 18.40% , compared to 12.59% for VOO. These numbers are adjusted for stock splits and include dividends.
Should I use Vanguard or Fidelity? ›
While Fidelity wins out overall, Vanguard is the best option for retirement savers. Its platform offers tools and education focused specifically on retirement planning.
Is VOO too expensive? ›
VOO charges 3 basis points, while SPY charges 9 basis points. Both are very low cost compared to the average ETF in the US market. Both are great options, well diversified, are run by amazing teams. However, fees do matter, and you get what you don't pay for in the financial industry.
What is the 10 year average return on the S&P 500? ›
The historical average yearly return of the S&P 500 is 12.68% over the last 10 years, as of the end of February 2024. This assumes dividends are reinvested. Adjusted for inflation, the 10-year average stock market return (including dividends) is 9.56%.
Is Vanguard S&P 500 a good investment? ›
The Vanguard S&P 500 ETF (VOO 1.00%) is a top choice for most index fund investors. Even Warren Buffett recommends it above any other investment. There's a good reason for that. Its low expense ratio and tight index tracking make it a top choice for anyone looking to match the returns of the S&P 500.
Is VOO a good long-term investment? ›
But VOO offers great liquidity as well as a rock-bottom expense ratio. As a result, this elegant long-term ETF gives you a piece of leaders including Apple Inc. (AAPL), Microsoft Corp. (MSFT) and others in one single holding.
Should I buy Spy or FXAIX? ›
SPY - Performance Comparison. The year-to-date returns for both stocks are quite close, with FXAIX having a 7.38% return and SPY slightly lower at 7.26%. Both investments have delivered pretty close results over the past 10 years, with FXAIX having a 12.66% annualized return and SPY not far behind at 12.49%.
