S&P 500 index funds are among the most popular investment choices in the U.S. thanks to their low cost, minimal turnover rate, simplicity and performance.
To select the best S&P 500 index funds of 2024, we screened investments that met the following criteria: a 10-year annualized tracking error of 0.25% or less, a net expense ratio under 0.2%, at least $1 billion in assets under management, a 4-star minimum Morningstar rating and at least a 10-year track record.
Best S&P 500 index funds
Why trust our investing experts
Experienced fund analysts select our best fund selections based on a screening of several must-have metrics. Some of these metrics include but are not limited to assets under management, expense ratio, strategy, management, minimum investment requirements, turnovers and fees. You can read more about our methodology below.
- 7,000 mutual funds screened.
- 3 levels of fact-checking.
- 3-step editorial review.
Compare the best S&P 500 index funds
Why other S&P 500 index funds didn’t make the cut
All S&P 500 index funds track the same benchmark. So we focused on those with the lowest expense ratios. Everything else being equal, fees are the largest determinant of an S&P 500 index fund’s performance. A fund with higher fees tends to incur a higher tracking error relative to its benchmark.
We also focused on passively managed S&P 500 index funds. And we excluded actively managed funds that use the S&P 500 index as an underlying asset. Examples include leveraged S&P 500 funds, inverse S&P 500 funds, and S&P 500 funds that employ derivatives to produce higher yields or hedge against crashes.
We created our ranking of the best S&P 500 index funds by applying a screen of several must-have metrics:
- Morningstar rating. The funds we selected have at least a 4-star rating from Morningstar. This is a quantitative, rearward-looking measure of a fund’s historical performance.
- Tracking error. We assessed how much a fund’s 10-year annualized performance differed from that of the S&P 500 index’s 10-year annualized return. The funds on this list have a tracking error of 0.25% or less. Lower is better.
- AUM. The funds on this list have accrued at least $1 billion in assets under management. We considered AUM only for the specific share class profiled. A higher AUM generally signals greater fund popularity.
- Expense ratio. An S&P 500 index fund must have a net expense ratio of 0.2% or less to be considered for this list. This factor was weighted heavily. That’s because it has the greatest effect on an S&P 500 index fund’s tracking error and performance.
- Management style. The funds on this list are passively managed. This means they replicate the exact holdings of the S&P 500 index and its returns net of fees. We excluded actively managed funds that use the S&P 500 as an underlying index but target an objective or return not matching the index (such as leveraged, inverse or income-oriented exposure).
This set of criteria lets you screen for S&P 500 index funds that are passively managed, charge low fees, tightly track their benchmark index and are managed by a reputable fund manager with a proven record of performance.
An experienced fund analyst selected the funds above, but they may not be right for your portfolio. Before purchasing any of these funds, do plenty of research to ensure they align with your financial goals and risk tolerance.
Final verdict
An S&P 500 index fund is an excellent core holding for U.S. investors. And it’s a great way to track the domestic stock market at a low cost with a passive approach. It can help you build a complete, globally diversified portfolio when coupled with a U.S. small-cap fund and an international stock fund. You can use an S&P 500 index fund for a high-conviction, long-term bet on U.S. large-cap stocks.
Our recommendation for the best overall S&P 500 index fund is the Fidelity 500 Index Fund. With a 0.015% expense ratio, it’s the cheapest on our list. And it doesn’t have a minimum initial investment requirement, sales loads or trading fees. Over the last 10 years, FXAIX has returned an annualized 12.02%. The S&P 500 index’s return is 11.8% during that period.
What is the S&P 500?
The S&P 500 is a market capitalization-weighted index comprising 500 leading U.S. companies. A committee selects the companies based on criteria that ensure the S&P 500 reflects the domestic market.
The index covers approximately 80% of the U.S. equity market. It includes companies from all sectors. This makes it one of the most comprehensive indicators of U.S. stock market performance.
The S&P 500 is regarded as one of the best barometers of the health and trends of the U.S. economy.
Why S&P 500 funds are a popular investment
S&P 500 funds are popular due to their low cost, strong historical performance and simplicity. You can access 500 leading U.S. companies with a single ticker for a small fee. This is much more affordable than buying 500 U.S. stocks individually.
The S&P 500 index is used as a benchmark and is difficult for active funds to beat. You can pick S&P 500 index funds to match the market’s long-term average return. This is called passive investing.
Investing in a fund that tracks the S&P 500 index is also a great way to diversify your portfolio across most of the U.S. stock market.
“The S&P 500 provides broadly diversified exposure across both sectors, such as technology, health care and financials, and styles, such as growth and value,” said Michelle Louie, senior portfolio manager at Vanguard’s Equity Index Group.
What to think about when choosing an S&P 500 index fund
All S&P 500 index funds track the same benchmark. So the primary factor to think about is expense ratios.
Fees directly reduce your fund’s returns. Keeping them as low as possible is crucial. Everything else being equal, lower fees result in a smaller tracking error. This increases how accurately your S&P 500 index fund tracks its benchmark.
After fees, consider whether the fund has minimum initial investment requirements, transaction fees or deferred sales charges. Also assess the fund’s track record and the fund manager’s reputation in terms of the fund’s tenure and AUM.
How to invest in an index fund
You can approach investing in an index fund differently depending on whether it’s structured as a mutual fund or an exchange-traded fund.
Mutual funds
Search for the mutual fund’s ticker symbol on your brokerage platform. Then, specify how many units of the fund you want to purchase.
Transactions for mutual funds are processed once a day. All orders for the day are executed at the same price. The price is determined at the market’s close.
ETFs
Investing in ETFs is akin to trading stocks. ETFs can be bought and sold throughout the trading day while the market is open.
Search for the ETF’s ticker symbol on your brokerage platform. Decide how many shares you want to buy and at what price. Then, submit your order.
Editor’s Note: This article contains updated information from a previously published story.
Frequently asked questions (FAQs)
S&P 500 index funds are investment vehicles that attempt to replicate the S&P 500 index’s holdings and returns. They are a low-cost way to gain exposure to the performance of U.S. large-cap stocks.
The S&P 500 is attractive due to its low fees and simplicity. It’s a straightforward way to gain exposure to some of the largest and most successful companies in the U.S. This makes it a suitable option for beginners. And that’s especially true if you have a long investment horizon and can reap the benefits of compounding over many years.
The index has delivered robust returns in the past. But past performance is not a guarantee of future results. Consider diversifying your portfolio beyond U.S. equities. International stocks and bonds can protect against market volatility and economic downturns in a single country.
Leveraged funds are mutual funds or ETFs engineered to deliver a multiple of the index’s return within a single trading day. For instance, on a day when the S&P 500 index rises by 1%, a two-times leveraged fund aims to produce a return of 2%.
These funds are designed primarily for short-term trading strategies. That’s because holding them over longer periods can lead to unpredictable results. This unpredictability stems from the way leverage interacts with daily compounding. It can amplify losses or gains and cause the fund’s performance to diverge from the underlying index’s return over time.
Leveraged funds often have higher fees and greater volatility than their nonleveraged counterparts. So they are a riskier choice.
An index fund represents a strategy to track the performance of a benchmark, such as the S&P 500. An ETF, on the other hand, is an investment vehicle. ETFs can be structured to track a specific index passively. Or they can be actively managed in an attempt to outperform the index.
Whether an index fund or ETF is better depends on your goals and preferences. If you want low fees and simplicity, consider an index fund, which can come in the form of an ETF or a mutual fund. It offers a straightforward way to gain exposure to a broad market index or a specific market segment. And it typically has lower costs and minimal management intervention.
ETFs can provide exposure to actively managed strategies and exotic asset classes like commodities and cryptocurrencies. Like stocks, ETF shares are bought and sold throughout the day. This adds a layer of flexibility not available with most mutual funds.
