You’ve decided to invest in the stock market for the first time and want to start with a broad index fund. Smart thinking. Index funds are a great set-it-and-forget-it way to invest in the overall stock market over the long run. But with so many options out there, how do you choose? The S&P 500 index is a good place to start. It includes 500 of the largest US companies, so it’s a solid representation of the total stock market. The key now is finding an S&P 500 fund with low fees so more of your money goes toward growing your investment rather than paying the fund company. We’ve done the research for you and found three S&P 500 index funds with some of the lowest fees around. Read on to find out which fund is the best fit for your needs.
What Is an S&P 500 Index Fund?
So what exactly is an S&P 500 index fund? It’s a fund that tracks the stocks in the S&P 500 index, which includes 500 of the largest U.S. companies.
Why invest in an S&P 500 index fund?
There are a few benefits to investing in an S&P 500 index fund:
- Low fees. Index funds have very low fees because they’re not actively managed. Lower fees mean higher returns for you.
- Diversification. With one fund, you get exposure to 500 leading companies across various industries. This helps reduce risk.
- Long-term growth. The S&P 500 index has a great track record of long-term growth. Over the last 50 years, it has averaged about 7% annual returns after inflation.
- Simplicity. Index funds are easy to understand and invest in. You don’t have to analyze individual stocks. You get instant diversification in one fund.
Some of the most popular S&P 500 index funds are Vanguard S&P 500 ETF (VOO), SPDR S&P 500 ETF Trust (SPY), and iShares Core S&P 500 ETF (IVV). These funds have rock-bottom fees, often less than 0.1% per year.
That’s the basics on S&P 500 index funds. If you’re looking for an easy, low-cost way to invest for the long run, an S&P 500 index fund is a great choice. You get instant diversification and exposure to America’s leading companies. Over time, the power of compounding and a steady average return of 7% can really add up.
Why Low Fees Matter for Index Funds
When it comes to index funds, fees matter. A lot. Why? Because fees directly impact your returns. The lower the fees, the more money stays in your pocket.
Over time, even small percentage differences in fees can add up to thousands of dollars.Say you invest $10,000 in two S&P 500 index funds. Fund A charges 0.5% in annual fees. Fund B charges 1.5%. If your money grows 6% annually over 30 years, Fund A would give you over $18,000 more than Fund B, just from lower fees!
The good news is, there are low-cost leaders in the S&P 500 index fund space. Look for funds with fees under 0.2%, like:
- Vanguard S&P 500 ETF (VOO): Charges just 0.03% annually. As an ETF, it’s very tax-efficient too.
- Fidelity ZERO Large Cap Index (FNILX): A mutual fund with no fees, expenses or commissions. Zero. Zip. Nada.
- Charles Schwab S&P 500 Index Fund (SWPPX): Boasts an ultra-low 0.02% expense ratio.
So do your research and compare fees. When you find a low-cost S&P 500 index fund that suits your needs, invest regularly and let the power of compounding work for you, not against you. Keep more of your hard-earned money so you can meet your most important financial goals.
After all, every little bit helps. And in the long run, little bits add up to a lot. Choosing a low-fee fund is one of the smartest moves you can make as an investor. Your future self will thank you.
The Top 3 Lowest Cost S&P 500 Index Funds
The three lowest cost S&P 500 index funds are:
Vanguard S&P 500 ETF (VOO)
VOO tracks the S&P 500 index and has an ultra-low expense ratio of just 0.03%. This means that for every $10,000 invested, you’ll pay only $3 in annual fees. VOO is one of the largest and most popular S&P 500 ETFs, with over $200 billion in assets. It’s a great low-cost option if you want broad market exposure.
Schwab S&P 500 Index Fund (SWPPX)
SWPPX is a mutual fund that also tracks the S&P 500 with an expense ratio of 0.02%. It requires a $1 minimum initial investment and no ongoing minimum balance. SWPPX has been around since 1997 and has over $200 billion in assets, making it one of the biggest index funds available.
Fidelity 500 Index Fund (FXAIX)
FXAIX is Fidelity’s S&P 500 index mutual fund. It has an expense ratio of 0.015%, just $1.50 per $10,000 invested annually. Like SWPPX, FXAIX requires a $0 minimum initial investment and ongoing balance. It launched in 1988 and now has over $300 billion in assets.
For most investors, any of these three funds would make an excellent low-cost choice for gaining broad exposure to the U.S. stock market. Over the long run, lower fees mean more of your money stays invested working for you. Keeping costs down is one of the best ways to improve your investment returns over time.
While index funds lack the potential to beat the market that actively managed funds offer, their rock-bottom fees and long-term performance make them a compelling option if you want to keep more of your money invested for the best chance of solid returns. For S&P 500 exposure, VOO, SWPPX or FXAIX are tough to beat.
Evaluating Other Factors Beyond Just Fees
Beyond just fees, there are other factors to consider when choosing an S&P 500 index fund.
While S&P 500 index funds aim to match the market, not beat it, some funds may perform slightly better or worse than others over time due to expenses and tracking error. Compare the 1, 3 and 5-year returns of funds you’re interested in to see how closely they match the S&P 500. The closer they are, the better.
The specific companies and weightings in an index fund’s portfolio can vary slightly. Check that the top 10 holdings of any fund you’re considering look similar to the actual S&P 500. Some funds may be very slightly overweight in certain sectors. As long as the holdings still broadly match the index, small differences are unlikely to significantly impact your returns.
Some S&P 500 index funds trade more frequently than others in order to closely track the index. More frequent trading leads to higher transaction costs which are passed onto investors through higher expense ratios. If minimizing fees is your top priority, choose a fund with a low turnover ratio, like 10% or less. infrequently trading funds may save you a few basis points in fees.
Additional Share Classes
Many S&P 500 index funds offer multiple share classes for different types of investors. Check if lower-cost share classes are available to you, like institutional or ETF shares. These typically have the lowest fees. Some funds waive or lower investment minimums for certain share classes if you set up an automatic investment plan.
While fees are hugely important in choosing an S&P 500 index fund, don’t forget to evaluate other factors like performance, holdings, trading frequency and share class options. Doing so will ensure you find a fund that meets all of your needs at the lowest cost.
Making the Best Choice for Your Investment Needs
When choosing an S&P 500 index fund, fees are one of the most important factors to consider. The lower the fees, the more of your money that gets invested and the greater potential for higher returns over time thanks to compounding.
The expense ratio refers to the annual fees charged by the fund to cover operating expenses. It’s expressed as a percentage of your investment. For S&P 500 index funds, look for an expense ratio under 0.5% or lower. Several reputable brokers like Vanguard, Fidelity and Schwab offer index funds with expense ratios of 0.03-0.15%. ###Other Fees
Some funds charge load fees, like front-end loads (fees paid when you buy shares) or back-end loads (fees paid when you sell shares). For an S&P 500 index fund, avoid any funds with load fees. Some brokers also charge account fees, trading commissions and other miscellaneous charges. Compare the total fees across different brokers to find the lowest cost option.
When fees are low, it’s easier for a fund to generate solid performance that closely tracks the S&P 500 index. Over the long run, even small differences in fees can translate into thousands of dollars in lost returns. Look for an S&P 500 index fund with a track record of closely matching the performance of the S&P 500, especially during market ups and downs.
Your Investment Needs
The best choice for your needs depends on factors like how much you want to invest, whether the fund offers tax-advantaged accounts like IRAs, and if you want the option to invest regularly through automatic contributions from your paycheck or bank account. Some top low-cost, low-fee choices for S&P 500 index funds include Vanguard S&P 500 ETF (VOO), Fidelity 500 Index Fund (FXAIX) or Schwab S&P 500 Index Fund (SWPPX).
In summary, keep your money working for you by minimizing fees. Do your research, compare expenses and performance, and find an S&P 500 index fund that suits your investment needs so more of your money stays invested for the long run.
After reviewing some of the top S&P 500 index funds, the Vanguard S&P 500 ETF (VOO) stands out as a low-cost, convenient option for investors.
With an expense ratio of just 0.03%, VOO is one of the lowest-cost S&P 500 ETFs. This means that for every $10,000 invested, you’ll pay only $3 per year in fees. The low costs allow your money to work harder for you over the long run through the power of compounding.
VOO provides broad market exposure by tracking the entire S&P 500 index. This includes over 500 of the largest U.S. companies from various industries like technology, healthcare, and finance. The fund aims to match the performance of the overall stock market, so you’ll get both growth and dividend opportunities.
VOO is ideal for long-term investors looking for a simple, low-maintenance way to invest in the stock market. You can buy and sell VOO on the stock exchange just like a stock, but without the hassle of picking individual companies. The fund automatically rebalances to match the index, so you can “set it and forget it.”
In summary, Vanguard’s S&P 500 ETF (VOO) offers an inexpensive, hands-off way to gain broad exposure to the U.S. stock market. With rock-bottom fees and over 500 of America’s leading companies in a single fund, VOO deserves a top spot on your list of S&P 500 index funds to consider. For new and seasoned investors alike, VOO provides an easy way to put your money to work in the market.