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Everything You Need To Know About S&P 500 Funds

|About: Fidelity® 500 Index Fund Inv (FUSEX), SPY, VFIAX
Summary

Learn how to pick the right fund.

Learn how to analyze the fees and tax benefits of funds.

Which funds fit your investing goals?

Investing in Index Funds has become an extremely popular place for retail investors to put their money into and watch it grow.  The most common of these index funds are designed to track the performance of the S&P 500.  The problem that most investors have is that they feel overwhelmed when trying to pick one of the many S&P 500 index funds.  With over 50 of them in the ETF marketplace, it becomes very hard to compare these funds in order to see which of these are among your top choices. 

These are some helpful tips that investors should be aware of when researching about the various S&P 500 funds out there.  First and foremost, you want to examine the associated fees that the fund has.  While you want to make sure that you are not just choosing the ETF with the lowest fees, you do not want to be paying high fees and wasting your hard earned cash.

Another major thing to consider when choosing the right S&P 500 index fund is who is managing the fund.  You want to first start doing this by looking at the company who controls the ETF index fund.  Almost all the big mutual fund companies have their own S&P 500 index fund.  This is a good place to start, as having a big and reputable company controlling your index fund will be beneficial to you.  Some of these companies include Vanguard, Fidelity, Charles Schwab, and T. Rowe Price.

When choosing the right index fund, you also want to consider the fund’s tracking error and the fund’s tax efficiency.   The tracking error measures how close the index fund is to the actual movement of the S&P 500.  The tax efficiency piece is important because ETF’s usually have better tax advantages than other types of investments, such as mutual funds.

With all of this in mind, we are going to look at some of the top S&P 500 funds out there.  They are SPDR S&P 500 (SPY), Vanguard 500 Index (VFIAX), and Fidelity 500 Index (FUSEX).  Below is a chart that compares some of the important variables for index funds.

Ticker

Minimum Investment

Expense Ratio

Assets Under Management

5 Year Return

1 Year Tracking Error

SPY

  •   

.09%

$184.7 B

14.1%

.05%

VFIAX

$3,000

.05%

$46.1 B

14.1%

.02%

FUSEX

$2,500

.1%

$96.4 B

14.1%

.02%

            Taking all of this information into account, the best S&P 500 Index fund for a retail investor to put their money into is Vanguard’s 500 Index.  This fund has the lowest expense ratio, while still having the best tracking error.  There is no sense in paying premium expense ratios when you are investing in an index fund, as it is relatively easy for the fund managers to track something as common as the S&P 500.  Vanguard is a massive company that has been around and respected in the finance industry for a long time.  Their S&P index fund (VFIAX) is a great investment opportunity for anybody looking to get market returns that are consistent with the S&P 500 index.