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Best S&P 500 Index Funds

The S&P 500 Index, formerly Standard and Poor’s 500 Index, launched in 1957 and continues to measure the value of 500 of the largest publicly traded companies in the United States. The S&P 500, listed on Nasdaq and the New York Stock Exchange, is simply a measurement tool built by a committee of professionals.

However, it’s a key performance or benchmark index of the economy of the United States. When you compare index funds vs. mutual funds, there’s not much of a fundamental difference between the two. Index funds are the same as mutual funds but they copy the already-built set of stocks and offer a ready-to-go investing portfolio.

We’ll review how to invest in the S&P 500 and showcase five of the best funds available.

Quick Look: The Best S&P Index Funds for this Year

  • Vanguard 500 Index Fund Investor Shares (VFINX)
  • Fidelity 500 Index Fund (FXAIX)
  • SPDR S&P 500 ETF (SPY)
  • Schwab S&P 500 Index Fund (SWPPX)
  • iShares Core S&P 500 ETF (IVV)

What Are S&P 500 Index Funds?

If you want to invest in the S&P 500, you’ll need to choose an index fund. The S&P 500 index funds, which are the financial instruments of the S&P 500 Index, try to replicate the benchmark index. A S&P 500 index fund also offers a diversified exposure to the United States equity market.

What Makes a Good S&P 500 Index Fund?

There are two basic criteria a good S&P 500 index fund should meet – low expense ratios and low tracking error. Although the cost at which you will stay invested is critical, you should never underestimate the tracking error.

1. Expense Ratio

The expense ratio is the cost at which you stay invested with a particular index fund. This is the most important part of an index fund. The lower the expense ratio, the higher the returns. Good S&P 500 index funds will have an expense ratio of around 0.2%.

2. Low Tracking Error

Index funds try to match the benchmark index, but it is very hard to match this with 100% accuracy. The lower the tracking error, the closer you are to the benchmark index. Since there are different tracking errors in the various index funds, they don’t perform the same way. The bigger index fund providers have a team of experts who monitor the index and try to lower the tracking error.

The tracking error usually occurs for two reasons:

  • Discrepancies in the portfolio of 500.  The benchmark S&P 500 index contains stocks of 500 famous companies. To replicate it, fund managers need to use the exact same 500 companies in your index fund. However, sometimes this is difficult due to various technical reasons. If the index fund doesn’t contain all the 500 companies in its portfolio, it will not reflect the benchmark index with full accuracy. This creates a tracking error.
  • Improper company weight distribution. The index contains 500 companies, some larger and some smaller. Professionals have decided to put some weight on the companies with bigger market cap. This way, the index will reflect the business and the economic environment in a better way. If the weight distribution is not placed correctly, a mismatch with the benchmark index also creates a tracking error.

The Best S&P 500 Index Funds

Benzinga picked the best S&P 500 index funds based on the above criteria.

1. Vanguard 500 Index Fund Investor Shares (VFINX)

 

The fund’s performance. Source: https://investor.vanguard.com/mutual-funds/profile/VFINX
Expense Ratio Average Yearly Performance Total Net Assets as of Nov. 2018 Weight of the 10 Largest Companies
0.14% 11.17% $441.5 billion 22.1%

Vanguard’s index fund offers the highest average yearly performance and total net assets in our review. T

he only drawback is that the expense ratio is higher for this fund than for the other index funds we’ve reviewed.

2. Fidelity 500 Index Fund (FXAIX)

The fund’s performance. Source: Vanguard.com
Expense Ratio Average Yearly Performance Total Net Assets as of Nov. 2018 Weight of the 10 Largest Companies
0.015% 10.24% $164.1 billion 21.86%

The Fidelity 500 Index Fund has a slightly lower average yearly performance, at less than 1% lower than Vanguard’s S&P 500 fund. The expense ratio is nearly 10 times lower than VFINX but the Fidelity 500 index fund has nearly three times fewer total net assets in comparison.

3. SPDR S&P 500 ETF (SPY)

Source: https://us.spdrs.com/en/etf/spdr-sp-500-etf-SPY
Expense Ratio Average Yearly Performance Total Net Assets as of Nov. 2018 Weight of the 10 Largest Companies
0.095% 9.7% $243.41 billion 20.95%

The SPDR S&P 500 ETF’s expense ratio is higher than the Fidelity 500 Index Fund (FXAIX). At the same time, the average yearly performance is also lower. The total net assets of the fund are 50% higher than FXAIX.

4. Schwab S&P 500 Index Fund (SWPPX)

Source:https://www.schwab.com/public/schwab/investing/accounts_products/schwab_index_funds_etfs

Expense Ratio

Average Yearly Performance Total Net Assets as of Nov. 2018 Weight of the 10 Largest Companies
0.03% 8.05% $35.3 billion 20.79%

Charles Schwab’s S&P 500 index fund has a lower expense ratio than SPDR, but the average yearly performance is lower as well. At the same time, Schwab’s index fund offers the lowest total net assets of any fund on our list.

Take a look at Benzinga’s list of the best Schwab index funds.

5. iShares Core S&P 500 ETF (IVV)

Source: https://www.ishares.com/us/products/239726/ishares-core-sp-500-etf
Expense Ratio Average Yearly Performance Total Net Assets as of Nov. 2018 Weight of the 10 Largest Companies
0.04% 5.5% $148.4 billion 20.92%

iShares’ S&P 500 index fund also maintains a very low expense ratio and the lowest average yearly performance of the funds in our review. The total net assets are $148.4 billion, which is one of the highest on the market. 

Where You Can Buy S&P 500 Index Funds

You can invest in any S&P 500 fund that interests you by opening up an account with any respective broker. Take a look at Benzinga’s favorite online brokers below. Or, you can check out a full guide to our Best Online Brokers for more a more in-depth look.

Broker Best For Commissions Account Minimum Choose your platform
Ally Investment
  • Active traders
  • Beginners looking to start trading
  • Low fees
$4.95 volume discount available $0
Get started securely through Ally Investment's website
1 Minute Review

If investors are on the hunt for a bargain broker, Ally Invest could be the one. With low commissions across the board, Ally Invest (formerly TradeKing) stops potential investors in their tracks with its especially low mutual fund commissions. Commissions on stocks and ETFs are notoriously inexpensive as well, and for more active traders or those with larger account balances, commissions can dip as low as $3.95 per trade.

Pros
  • Volume discounts available
  • Among the lowest fees in industry
  • Good for every experience level
  • Excellent customer service
Cons
  • Lacks physical locations
Current Promotion

$3.95 per stock trade for Active Traders at Ally Invest

eTrade
  • Mobile traders
  • Traders looking for research and data
  • Investors looking for retirement planning guidance
$6.95 for fewer than 30 trades/quarter. $0
Get started securely through eTrade's website
1 Minute Review

E-Trade is best known for its user-friendly browser, desktop and mobile trading platforms and its extensive research and educational information. E-Trade may not have the lowest commissions compared to discount online brokers, but customers certainly get their money’s worth from E-Trade’s comprehensive offerings.

Pros
  • Extensive resources
  • Full banking services
  • Easy-to-use platforms
Cons
  • Limited access to ETrade Pro
  • Higher commissions than discount brokers
Current Promotion

60 days of commission-free trades with deposit of $10,000 or more

TD Ameritrade
  • Beginner investors
  • Advanced traders
  • Investors who want portfolio-building advice.
$6.95 $0
Get started securely through TD Ameritrade's website
1 Minute Review

This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.

Pros
  • Superior technology
  • No account minimum balance
  • Excellent customer support
  • Premier data and news partnerships
Cons
  • Slightly higher commissions
  • Can be for more advanced users
Current Promotion

Trade commission–free for 90 days & get up to $2500

You can also view Benzinga’s full step-by-step guide on how to purchase index funds once you’ve picked a broker.

Final Thoughts

S&P 500 index funds are financial instruments most suitable for long-term investors who can handle moderate or high risk. Because index funds offer diversified exposure to the U.S. equity market, they could be the core of your investment portfolio. The five S&P 500 index funds that Benzinga reviewed are one of the best index funds available on the market.

They provide a relatively low tracking error. You can confirm this by comparing their charts to the S&P 500 benchmark index chart. At the same time, these S&P 500 index funds maintain a very low expense ratio. The average return of these funds is relatively high compared to the expense ratio. Thus, they are a preferred instrument to include in your portfolio.  

Want to learn more? Check out Benzinga’s guides to the best online brokerages, free stock trading and best S&P 500 ETFs.

Compare Online Brokers
Broker Commission Account Min Get Started

$4.95 volume discount available $0 Learn More

Spreads start as low as $1 But vary based on trading volume $250 Learn More

$0 $0 Learn More

$0.005 per share minimum $1 and maximum 0.5% of trade value; volume discount available $0 for cash account, or a margin account with $2,000 Learn More

$3.00 broker assited orders an additional $6 $500 Learn More