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Fidelity 500 Index (FXAIX)
Expense ratio
0.015%
Net assets
$515.2 billion
Minimum investment
None
0.015%
$515.2 billion
None
Why We Picked It
Mutual funds as a group are generally more expensive than exchange-traded funds because they tend to feature more complex management styles. Structurally, they also have different administrative and recordkeeping charges.
However, a look at the numbers for FXAIX shows this S&P 500 index fund from Fidelity is actually cheaper than several similar out there, making it one of the most cost-effective ways to play this popular benchmark of large U.S. stocks regardless of your investment vehicle.
This low-cost structure coupled with no minimums on initial investment means FXAIX could be considered a go-to option for almost every investor interested in tracking the S&P 500 index of large-cap U.S. stocks.
Fidelity Flex 500 Index (FDFIX)
Expense ratio
None
Net assets
$4.3 billion
Minimum investment
None
None
$4.3 billion
None
Why We Picked It
You may think it’s impossible to get any lower than the rock-bottom cost structure of the prior Fidelity fund. But Fidelity also offers a fund that is completely free of charge to investors. The catch? You can only buy into this S&P 500 index fund if you’re an active Fidelity Investments account holder.
That may not be much of a hurdle for many investors, though, considering Fidelity currently boasts more than $4 trillion in assets under management. FDFIX is smaller than some of the other funds out there that are open to all manner of investors, but it’s still established enough that you can invest with confidence. That is, if you think Fidelity is the right place to park your entire portfolio, of course.
Schwab S&P 500 Index Fund (SWPPX)
Expense ratio
0.02%
Net assets
$87.8 billion
Minimum investment
None
0.02%
$87.8 billion
None
Why We Picked It
Of course, looking beyond Fidelity for the best S&P 500 index fund doesn’t mean you’ll be forced to pay an arm and a leg for some small potatoes offering.
A good example of an affordable alternative to Fidelity is this Schwab fund benchmarked to the same index of large domestic stocks—the S&P 500—with no investment minimum and a cost structure among the lowest of any mutual fund on the planet.
While a difference of 0.05 percentage points isn’t nothing, it adds up to just $50 a year on a $100,000 portfolio. That means if you prefer Schwab as your money manager of choice, SWPPX is one of the cheapest and most established S&P 500 index funds out there that you can buy with confidence, even if it isn’t the absolute cheapest option.
Vanguard 500 Index Admiral Fund (VFIAX)
Expense ratio
0.04%
Net assets
$1.0 trillion
0.04%
$1.0 trillion
$3,000
Why We Picked It
When you consider the absolute numbers versus the prior S&P 500 index funds, this Vanguard fund has an investment minimum and a higher fee structure than the others. But on balance—with a minimum investment on the high end of average and a comparatively affordable cost structure when compared to other mutual funds and many ETFs—it’s still very accessible.
Besides, with more assets than many of the other smaller S&P 500 index funds out there combined, it’s a dominant offering. As with the Schwab fund, if Vanguard funds is your go-to platform for mutual funds then you can have confidence in VFIAX as a long-term holding.
Invesco Equally-Weighted S&P 500 (VADAX)
Expense ratio
0.52%
Net assets
$6.6 billion
Minimum investment
$1,000
0.52%
$6.6 billion
$1,000
Why We Picked It
With an expense ratio that is many times higher than the other S&P 500 index funds, you may be wondering what a mutual fund as pricey as VADAX is doing on this list. Well, we’ve included VADAX because it offers a slightly different and more complex approach than the others.
As the name implies, VADAX is “equal weight” in the 500 components that make up the popular S&P 500 index—as opposed to the traditional makeup of the index, which is weighted by market value.
Some rookie investors may not even know it, but the S&P isn’t spread evenly among its 500 components. Rather, large companies like Apple (AAPL) and Microsoft (MSFT)gather more weight. In fact, those two stocks alone represent roughly 14% of the index at present!
VADAX looks to avoid this by spreading your cash around equally. That results in more complexity and thus more cost, but if you’re interested in true diversification, then this may be a bit of extra money well spent.
Summary: Best S&P 500 Index Funds of December 2023
| Company | Company - Logo | Expense ratio | Net assets | Minimum investment | Learn More CTA text | Learn more CTA below text | Learn More |
|---|---|---|---|---|---|---|---|
| Fidelity 500 Index (FXAIX) |  | 0.015% | $48.4 billion | None | View More | ||
| Fidelity Flex 500 Index (FDFIX) | | None | $4.1 billion | None | View More | ||
| Schwab S&P 500 Index Fund (SWPPX) |  | 0.02% | $83.6 billion | None | View More | ||
| Vanguard 500 Index Admiral Fund (VFIAX) |  | 0.04% | $394.1 billion | $3,000 | View More | ||
| Invesco Equally-Weighted S&P 500 (VADAX) |  | 0.53% | $6.4 billion | $1,000 | View More |
*Data from Morningstar Direct, current as of February 29, 2024, unless noted otherwise.
Methodology
While the list of S&P 500 ETFs is fairly small and dominated by big money managers, the mutual fund universe is more crowded.
After all, it’s not terribly difficult to replicate this list of the 500 largest U.S. stocks. Every investment provider offering a 401(k) or IRA platform has an incentive to set up their own cookie-cutter vehicle rather than refer their clients—and their fees—to one of the big guys.
The challenge is that even indexed mutual funds can cost a modest amount in recordkeeping and reporting charges. So unless they have scale, most providers end up charging several times more than the cheapest options.
That’s why our list is built with a focus on scale and cost-effectiveness, including:
- A minimum of $2 billion in assets under management
- An expense ratio of less than 0.04% or less, which is just $4 annually on every $10,000 invested
- A low minimum investment threshold of no more than $3,000
The only exception to this is the “equal weight” S&P 500 fund, which is significantly more expensive but offers the feature of additional diversification. It is the only established equal-weight S&P 500 index fund available to mutual fund investors.
What Are S&P 500 Index Funds?
If you’re unclear on what an S&P 500 index fund is, it’s worth breaking down various parts of this larger term to help it make sense.
S&P Global is a major provider and manager of market data. Think of it as a company that digs into all the numbers behind stocks and other assets.
The S&P 500 index is this company’s flagship product, composed of the 500 largest U.S. companies when ranked by market value.
An index fund is a diversified investment vehicle that is locked to a fixed list of assets, or an “index.” These are passive lineups, as opposed to more active strategies that depend on a money manager trading individual positions voluntarily.
The S&P 500 is widely recognized to be the best measure of Wall Street performance. It’s not perfect, as it excludes a lot of the little guys. It also admittedly plays favorites with some sectors, with technology leading the index at 28% of the weighting while utility stocks add up to less than 3% of the total.
But if you simply want to know what’s going on in “the stock market,” the S&P 500 index is as good a proxy as you’ll find. Similarly, investing in an S&P 500 index fund is one of the simplest and most popular ways to gain exposure to Wall Street without picking individual stocks.
How To Choose an S&P 500 Index Fund
There are many S&P 500 index funds available in the market, so it’s important to keep a few criteria to pick the right one for your portfolio. You’ll want to think about:
- Expense ratio. As index funds are passively managed, expense ratios, which represent the fees you pay for the upkeep of your fund, should be nominal. Because all S&P 500 index funds perform very similarly, the amount you’re paying in fees becomes incredibly important when picking a fund.
- Minimum investment. Index funds have different investment minimums for taxable investment accounts and IRAs. Make sure your favorites align with the initial amount you have to invest and that you’ll be able to purchase more shares in intervals that work with your budget.
- Dividend yield. Dividends can be one of the perks of investing in large-cap companies. Be sure to compare the dividend yield between index funds as dividends could boost returns, even in down markets.
- Inception date. If you’re an investor who prefers to see a solid track record for a fund prior to investment, pay attention to the fund’s inception date. Funds with longer histories can help you see how an index fund capitalized on bull markets and mitigated losses in bear markets.
Keep in mind that you only need one S&P 500 index fund in your portfolio. The best funds post broadly similar returns that are within a few percentage points of each other, and there’s little to gain by splitting assets between two funds. If you’re truly torn between two, you could consider using one fund in your 401(k) and the other in an IRA or your taxable investment account.
Featured Partners
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SoFi Automated Investing
SoFi Management Fee
None
Account Minimum
$1
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Wealthfront
Annual advisory fee
0.25%
Account minimum
$500
How To Invest in the S&P 500
You’ve got plenty of options to invest in the S&P 500. The first step is to understand how the S&P 500 stock market index works and how it can fit in with your overall investment goals. This will help you make informed decisions about your investment strategy.
- Choose an investing account. You can invest in the S&P 500 through a brokerage account, an individual retirement account (IRA) or your 401(k).
- Determine your investment strategy. Decide on how you want to invest in the S&P 500—via an ETF, an index fund or individual stocks. There are plenty of ETFs that track the performance of the index, as well as index mutual funds like the examples we list above. Alternatively, you can invest directly in individual stocks of S&P 500 companies, which requires more research and a deeper understanding of individual companies.
- Make your trades. Once you have determined your investment approach, use your investing account of choice to place your trades. Specify the number of shares or the dollar amount you want to invest.
- Monitor and rebalance your investments. Keep an eye on your investment and review it periodically. The S&P 500 is a broad index, so it’s important to ensure that your portfolio remains diversified. Rebalance your holdings if necessary to maintain your desired asset allocation.
What’s the Difference Between Index Funds and ETFs?
For most people, S&P 500 index funds and ETFs are functionally the same, and you’ll want to choose whichever fund—whether index or ETF—has the lowest cost and financial minimums that make sense for your investment goals.
That said, here are a handful of differences to keep in mind:
- ETFs are generally more liquid, trading throughout the day like stocks on the exchange; you can only buy or sell index funds at one point in the day, after other trading has ended. If you’re a long-term, buy-and-hold investor, this distinction is likely not relevant.
- Management fees on ETFs can be lower than on index funds tracking the same index, but don’t assume index funds are necessarily the pricier option.
- ETF buy-ins are often much lower than minimum investments required by mutual funds.
- However, fewer brokerages allow you to purchase fractional shares of ETFs, which may make it more difficult for you to buy additional shares.
- You’re much more likely to find only index funds in an employer-sponsored retirement plan, like a 401(k).
- ETFs have a slightly better setup for managing taxes, but this is less important to consider for index-based funds that aren’t engaging in frequent trading and for funds that you’re holding in tax-advantaged retirement accounts.
Regardless of whether you pick an S&P 500 index fund or ETF, know that these funds remain a solid tool for you to access large-cap stocks for your portfolio without having to vet individual stocks. With traditionally low management fees and a wide array of investment minimums, you’ll have plenty of options that align with your assets and investment strategy.
Next Up in Retirement
- Best Total Stock Market Index Funds
- What Are Index Funds?
- How To Buy Index Funds
- ETF Vs Index Fund: What’s The Difference?
- How To Invest In Vanguard Index Funds
Information provided on Forbes Advisor is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circ*mstances. We do not offer financial advice, advisory or brokerage services, nor do we recommend or advise individuals or to buy or sell particular stocks or securities. Performance information may have changed since the time of publication. Past performance is not indicative of future results.
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