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The Best S&P 500 Index Funds

Find out which index funds tracking the S&P 500 have the lowest fees and most closely track the market.

By Matthew DiLallo – Updated Mar 19, 2023 at 5:43PM

S&P 500 Index Funds are passive investments allowing investors to match the performance of the S&P 500, an index featuring the 500 largest publicly traded companies in the U.S. They're ideal for investors who want to earn returns in line with the broader market but don't want to own individual stocks.

Stock market graph.
Image source: Getty Images.

3 best S&P 500 index funds in 2023

These three major S&P 500 funds are extremely similar in composition since each tracks the performance of the same index:

  1. Fidelity 500 Index Fund (NASDAQMUTUALFUND:FXAI.X)
  2. Schwab S&P 500 Index Fund (NASDAQMUTUALFUND:SWPP.X)
  3. Vanguard 500 Index Fund Admiral Shares (NASDAQMUTUALFUND:VFIA.X)

All three are very low-cost ways to invest in the 500 companies making up the S&P 500 index. Fidelity has the lowest costs, with a 0.015% expense ratio. Schwab's is only slightly higher at 0.02%, while the Vanguard 500 Index Fund Admiral Shares has a 0.04% expense ratio.

Fidelity and Schwab offer their index funds with no minimum investment, making them very accessible to beginning investors. Meanwhile, Vanguard has a relatively low minimum investment of $3,000.

Vanguard also offers an exchange-traded fund (ETF) focused on investing in the 500 companies that comprise the S&P 500 index. The Vanguard S&P 500 ETF (VOO -0.7%) has a low minimum investment of one share ($355 as of March 14, 2023) and a low expense ratio of 0.3%. This index fund-like product trades on a major stock exchange, allowing investors to buy and sell like they would a stock.

Each S&P 500 index fund has very closely replicated the index's performance:

Data sources: Schwab, Fidelity, and Vanguard. Data as of March 14, 2023.
Index or Fund 1-Year Total Return 3-Year Annualized Return 5-Year Annualized Return
S&P 500 Index -7.69% 12.15% 9.82%
Vanguard 500 Index Admiral Shares -7.74% 12.11% 9.78%
Schwab S&P 500 Index Fund -7.73% 12.12% 9.79%
Fidelity 500 Index Fund -7.71% 12.14% 9.81%

There are negligible differences between the performances of the S&P 500 and each of these three index funds that track it. The S&P 500 outperformed each fund slightly, as would be expected when accounting for each fund's expense ratio.

At the S&P 500's rate of return, a $10,000 investment made five years ago would have grown into $15,230 by early 2023. Even the worst-performing index fund of the three would have increased the $10,000 investment to $15,190 over the same five-year period, with that slight variation due to fees.

With any of these three funds, you can expect your investment to deliver a performance that's virtually identical to the S&P 500, less fees. Given its lower expense ratio, Fidelity's S&P 500 index fund will likely continue to slightly outperform Schwab and Vanguard over the longer term.

Why are S&P 500 index funds popular?

An index fund is designed to mirror the performance of a stock index. An S&P 500 index fund invests in each of the 500 companies in the S&P 500 (SNPINDEX: ^GSPC). It doesn't try to outperform the index. Instead, it uses the index as its benchmark and aims to replicate its performance as closely as possible.

S&P 500 funds are by far the most popular type of index fund. But index funds can be based on practically any financial market, investing strategy, or stock market sector

Index funds are popular with investors for a number of reasons. They offer easy portfolio diversification, with some funds providing broad exposure to hundreds or even thousands of stocks and bonds. You don't risk losing all your money if one company collapses, like you could with individual investments. However, you also don't have as much upside potential to the astronomical returns that can result from picking a single huge winner.

Index funds are passively managed, which means you're not paying for someone to actively pick and choose investments. Passively managed funds result in a lower expense ratio from lower investment management fees compared to actively managed funds.

  • Your money will track the market's performance. Historically, the S&P 500's annual returns have been in the 9% to 10% range. In some years, the index will lose value. For example, during the Great Recession, the S&P 500 lost about half of its value. Meanwhile, the index experienced a bear market starting in early 2022. As of March 14, 2023, the S&P 500 was down more than 6% over the past year. But over the long term, it's always recovered. Never in the S&P 500's history has a 20-year investment resulted in a loss.
  • You keep more of your investment profits in your pocket. S&P 500 index funds are low-cost investments. While active managers are likely to match or even beat the market's performance over time, their fees eat away at your returns. Because they're passive investments with low fees, S&P 500 index funds deliver returns that mirror the index's returns over the long term.
  • You're investing in 500 of the most profitable companies in the U.S. The corporations represented in the S&P 500 are subject to stringent listing criteria. To join the index, a company must have a $12.7 billion market capitalization, and the sum of its past four quarters' earnings must be positive. Each company must also get approval from an index committee. The S&P 500's largest holdings include Apple (AAPL -0.04%), Amazon (AMZN -0.74%), Microsoft (MSFT 0.56%), and Johnson & Johnson (JNJ -1.22%).
  • You can put your investment decisions on autopilot. The S&P 500 has a flawless track record of delivering profits over long holding periods, allowing you to invest without worrying as much about stock market fluctuations. You also don't have to research or follow individual companies. You can simply budget a certain amount and automatically invest it on a regular schedule. This practice is known as dollar-cost averaging. Even if you do pick individual stocks, S&P 500 funds are a good foundation for your investment portfolio since you're guaranteed the returns of the stock market.

Beware of leveraged S&P 500 index funds

Be wary of leveraged funds that are advertised as S&P 500 ETFs. Leveraged ETFs use borrowed money and/or derivative securities to amplify investment returns or to bet against the index. For example, a 2x-leveraged S&P 500 ETF aims to return twice the index's performance each day. So if the index rises by 2%, the ETF's value rises by 4%. If the index falls by 3%, the ETF loses 6%.

These leveraged products are intended to be day-trading instruments and have an inherent downside bias over the long term. In other words, a 2x-leveraged S&P 500 ETF over the long term will not return twice the index's performance.

Investing in S&P 500 index funds is one of the safest ways to build wealth over time. But leveraged ETFs -- even those that track the S&P 500 -- are highly risky and don't belong in a long-term portfolio.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Matthew DiLallo has positions in, Apple, and Johnson & Johnson. The Motley Fool has positions in and recommends, Apple, Microsoft, and Vanguard S&P 500 ETF. The Motley Fool recommends Johnson & Johnson and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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