Over the long term, it’s very difficult to pick individual stocks that will outperform the overall stock market. The S&P 500 index is considered one of the most significant benchmarks of the US stock market, and several exchange-traded funds (ETFs) track and attempt to replicate the performance of the S&P 500.
S&P 500 ETFs are popular with long-term buy-and-hold investors because of their strong track record and low costs. In this article, we’ll look at some of the best options available.
This article aims to highlight ETFs that may be a good fit if you’re looking to invest in the US stock market. This is not investment advice, and it’s possible to lose money with these ETFs. If you have questions about your situation, seek personalized help from a financial advisor.
The Best S&P 500 ETFs
Most of the ETFs covered in this article are very similar, which makes sense since they’re all tracking the same index. You may find it easier to compare ETFs that track the S&P 500 than high dividend ETFs, REIT ETFs, or other classifications where the differences tend to be more significant.
If you find something you want to add to your portfolio, it’s very easy to purchase an ETF with an online brokerage like Public, Webull, or Moomoo. You can read our article How to Buy an ETF for more details.
The details for each ETF listed below are from VettaFi. They are valid as of the day this article was updated, February 16, 2023. Be sure to check the current details, as they will change with time.
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1. iShares Core S&P 500 ETF (IVV)
First on our list is the iShares Core S&P 500 ETF. We rank it number one because of its extremely low expense ratio (which is matched by some other funds on this list) and because it’s one of the largest ETFs in the world, with more than $300 billion in assets under management.
Later, we’ll look at the SPDR S&P 500 ETF, the biggest and most popular ETF of its kind. IVV gives you a similar fund with a significantly lower expense ratio (0.03% to 0.09%). And although it’s smaller than SPY, IVV still offers plenty of liquidity thanks to high trade volume.
If you’re looking for a low-cost S&P 500 ETF with a long track record to add to your portfolio, IVV is an excellent choice.
Expense Ratio: 0.03%
Annual Dividend Yield: 1.25%
1 Year Return: -5.68%
3 Year Return: 28.74%
5 Year Return: 67.99%
2. Vanguard S&P 500 ETF (VOO)
Vanguard investors may prefer the Vanguard S&P 500 ETF, which is very similar to IVV. This fund also offers the same low expense ratio of 0.03% and has nearly identical performance in terms of dividend yield and historical returns.
VOO is another popular and established fund with well over $250 billion in assets under management. The daily trading volume also provides plenty of liquidity.
Expense Ratio: 0.03%
Annual Dividend Yield: 1.24%
1 Year Return: -5.67%
3 Year Return: 28.74%
5 Year Return: 67.72%
3. SPDR S&P 500 ETF (SPY)
As mentioned earlier, the SPDR S&P 500 ETF from State Street Global Advisors is the most popular fund on this list, with more than $375 billion in assets under management. SPY was the first ETF in the US and is one of the largest and most frequently traded ETFs of any type.
SPY is ranked third on our list because the expense ratio is higher than the other two funds we’ve already covered. Although it’s higher than some competitors, 0.09% is still a very low expense ratio compared to the broader ETF market, so investors shouldn’t be overly concerned.
The SPDR S&P 500 ETF offers the best liquidity since the daily trading volume is so high. This is a factor for active traders to consider, but it shouldn’t be an issue for buy-and-hold investors.
Expense Ratio: 0.09%
Annual Dividend Yield: 1.22%
1 Year Return: -5.70%
3 Year Return: 28.63%
5 Year Return: 67.25%
4. SPDR Portfolio S&P 500 ETF (SPLG)
Here’s another ETF from State State that tracks the S&P 500. There are two key differences between SPLG and SPY:
- SPLG’s expense ratio is 0.03% compared to SPY’s 0.09%.
- SPLG is significantly smaller than SPY with lower trading volume (and slightly less liquid).
While SPY has more than $375 billion of assets under management, SPLG has only $16 billion. SPY’s size and trading volume offer a small advantage to investors who are like to buy and sell relatively quickly. SPLG is better suited for long-term investors because of the lower expense ratio.
Expense Ratio: 0.03%
Annual Dividend Yield: 1.24%
1 Year Return: -5.61%
3 Year Return: 28.85%
5 Year Return: 68.57%
5. iShares S&P 500 Growth ETF (IVW)
The four funds we’ve looked at so far are all very similar in most ways. Now, we’re moving on to a fund offering a different approach while still fitting into the same classification.
The iSharares S&P 500 Growth ETF tracks the S&P 500 Growth Index, a sub-index of the S&P 500. This index aims to track S&P 500 companies most likely to experience growth.
IVW has an expense ratio (0.18%) significantly higher than the other funds we’ve covered so far. However, it offers better upside and higher potential returns when market conditions favor growth.
It’s also worth noting that IVW’s dividend yield is the lowest of the funds on this list, which makes sense since it focuses on growth stocks.
Expense Ratio: 0.18%
Annual Dividend Yield: 0.54%
1 Year Return: -15.16%
3 Year Return: 23.52%
5 Year Return: 69.65%
6. Invesco S&P 500 Equal Weight ETF (RSP)
The Invesco S&P 500 Equal Weight ETF tracks the S&P 500, but takes a different approach than the others on this list. Instead of balancing holdings based on market capitalization, RSP uses equal weighting.
As a result, the largest blue-chip stocks account for a much smaller portion compared to the other funds that track the S&P 500. Likewise, mid-cap stocks make up a bigger portion of RSP.
Currently, the top holding of RSP accounts for only 0.33% of the fund’s portfolio, which is rebalanced quarterly.
Expense Ratio: 0.20%
Annual Dividend Yield: 1.28%
1 Year Return: -0.35%
3 Year Return: 36.23%
5 Year Return: 65.81%
What is an S&P 500 ETF?
An S&P 500 ETF (exchange-traded fund) tracks the performance of the S&P 500 index. Generally, the performance of these funds should closely mirror the index’s performance. As a result, it’s one of the best and easiest ways to get exposure to the stock market. These funds trade on major stock exchanges like other stocks and can be bought and sold just like any other security.
Why Invest in the S&P 500?
- Simplicity. S&P 500 index funds are popular because they offer an easy way to get exposure to the US stock market.
- Track Record. The S&P 500 has a strong track record since its inception in the 1950s, especially for long-term investors.
- Low Cost. The funds in this article offer expense ratios as low as 0.03%, so they’re ideal for fee-conscious investors.
- Relatively Balanced. The S&P 500 index includes more companies than the Dow Jones. And the S&P 500 includes companies from various industries and sectors, while the NASDAQ is tech-heavy.
How to Choose an S&P 500 ETF
Here are a few factors to keep in mind when deciding which fund to buy.
- Expense Ratio. Expenses reduce your return, so funds with lower expense ratios are understandably attractive (assuming all other factors are equal). Thankfully, all the funds covered in this article offer relatively low expense ratios, but some are significantly lower than others.
- Liquidity. ETFs are liquid assets because they can be sold whenever the stock market is open. However, funds with high trading volume, like SPY, offer more liquidity than others. All the funds on this list offer plenty of liquidity for long-term investors, but active traders may want to consider this factor.
- Share Price. The share price will not be an issue if you use an online broker like Public or Webull that supports fractional shares. But if you’re using a brokerage that only sells full shares, it may impact which funds are an option for you.
- Yield and Return. Of course, the goal is to make money with your investment. Most of the funds on this list offer similar performance, but some differences exist.
How S&P 500 ETFs Fit Into Your Portfolio
It’s important to remember that no single investment will perform well in all market conditions. A diversified portfolio is key for any investor with long-term goals.
S&P 500 ETFs are a great way to get exposure to the US stock market, but you should also consider other asset classes like bonds and international stocks. Also, don’t forget about alternative investments like real estate.
When building your portfolio, ensure you understand how asset classes react differently to changing economic conditions. This will help you build a portfolio tailored to meet your specific goals and needs. And if you need personalized help, please seek guidance from a qualified financial professional.