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In the dynamic landscape of investment, S&P 500 index funds stand out as a reliable choice for both seasoned investors and newcomers alike. These funds offer exposure to a diversified portfolio consisting of America’s most prominent and successful companies. As we navigate through 2024, it’s crucial to identify the best options available in this realm. Let’s explore the top five S&P 500 index funds that have demonstrated exceptional performance and reliability in the current financial landscape.
Why you Invest on S&P 500 Index Funds
Over a five-year period, these funds have shown similar average annual returns, primarily varying in expense ratios and minimum investment requirements. The Fidelity ZERO Large Cap Index (FNILX), being a no-fee exchange-traded fund (ETF), slightly outperforms others, while the SPDR S&P 500 ETF Trust (SPY) lags slightly behind due to its marginally higher expense ratio.
Here are some of the best S&P 500 index funds available in 2024, as per Morningstar data from March 11, 2024. Each of these funds allows you to invest in the Standard & Poor’s 500 Index, consisting of America’s largest and most successful companies.
5 Best S&P 500 Index Funds for 2024
As we delve into the realm of S&P 500 index funds in 2024, these top five options stand out for their consistent performance, competitive expense ratios, and accessibility. Whether you’re a seasoned investor or just beginning your investment journey, considering these funds can provide a solid foundation for your portfolio, aligning with the long-term growth potential of the S&P 500 Index. Always conduct thorough research and consult with financial advisors to ensure that your investment decisions align with your financial goals and risk tolerance.
Fidelity ZERO Large Cap Index (FNILX):
- With an impressive five-year annual return of 15.3%, the Fidelity ZERO Large Cap Index Fund leads the pack.
- What sets FNILX apart is its remarkable feature of charging zero expenses, making it an attractive option for cost-conscious investors.
- This fund requires no minimum investment, providing accessibility to investors of all levels.
Vanguard S&P 500 ETF (VOO):
- Vanguard S&P 500 ETF boasts a commendable five-year annual return of 15.2%.
- While maintaining a low expense ratio of 0.03%, VOO offers investors the opportunity to benefit from the performance of the S&P 500 Index at a minimal cost.
- Like FNILX, VOO also has no minimum investment requirement, making it accessible to a wide range of investors.
SPDR S&P 500 ETF Trust (SPY):
- With a five-year annual return matching VOO at 15.2%, the SPDR S&P 500 ETF Trust is another strong contender.
- While its expense ratio is slightly higher at 0.095%, SPY still offers a competitive option for investors seeking exposure to the S&P 500 Index.
- Similar to the previous funds, SPY does not impose a minimum investment requirement.
iShares Core S&P 500 ETF (IVV):
- IVV maintains a five-year annual return of 15.2%, aligning closely with its counterparts in performance.
- With a low expense ratio of 0.03%, this fund provides cost-effective access to the S&P 500 Index.
- Investors will appreciate the absence of a minimum investment threshold, ensuring accessibility for all.
Schwab S&P 500 Index (SWPPX):
- Rounding up the top five is the Schwab S&P 500 Index Fund, boasting a five-year annual return of 15.2%.
- With one of the lowest expense ratios in the lineup at 0.02%, SWPPX offers investors an attractive option for S&P 500 exposure.
- Similar to its peers, SWPPX does not require a minimum investment, enhancing its accessibility.
| Fund (ticker) | 5-year annual returns | Expense ratio | Minimum investment |
| Fidelity ZERO Large Cap Index (FNILX) | 15.3% | 0% | None |
| Vanguard S&P 500 ETF (VOO) | 15.2% | 0.03% | None |
| SPDR S&P 500 ETF Trust (SPY) | 15.2% | 0.095% | None |
| iShares Core S&P 500 ETF (IVV) | 15.2% | 0.03% | None |
| Schwab S&P 500 Index (SWPPX) | 15.2% | 0.02% | None |
| Vanguard 500 Index Fund (VFIAX) | 15.2% | 0.04% | $3,000 |
| Fidelity 500 index fund (FXAIX) | 15.2% | 0.015% | None |
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Should I buy S&P 500 index fund ?
When selecting an S&P 500 index fund, several key factors come into play, including the expense ratio and minimum investment requirements. While these funds all track the same index, even minor differences in these factors can have significant implications for investors.
For instance, the Vanguard S&P 500 ETF boasts an expense ratio of just 0.03 percent annually, translating to a mere $3 for every $10,000 invested. While other funds may vary slightly in expense ratios, all S&P 500 index funds generally offer low-cost investment options, well below the average fund’s expenses.
However, it’s essential to consider the trade-offs involved. For example, opting for the Fidelity ZERO fund, which charges no expense ratio, means sacrificing the S&P 500 brand association. While the fund effectively tracks the index and may even outperform it slightly, investors should be aware of this distinction.
Moreover, while minimum investment requirements may be a significant consideration for mutual funds, they are less relevant for ETFs. Most of the mutual funds listed here have no minimum investment requirement, while the Vanguard 500 fund maintains a standard $3,000 minimum. For ETFs, investors may need to purchase at least one full share, and prices can vary. However, with brokers offering fractional shares, investors can start investing with just a few dollars.
Additionally, not all mutual funds may be available across all brokerage platforms. For example, the no-cost Fidelity ZERO fund may not be an option at most brokers, necessitating the opening of a Fidelity brokerage account for interested investors.
While S&P 500 index funds are generally considered low-risk investments, investors should be aware of potential risks such as market volatility and concentration risk. However, for those seeking broad market exposure with low expenses and minimal investment requirements, S&P 500 index funds present a compelling investment opportunity.
To learn more about investing in S&P 500 index funds and how to get started, refer to our guide on investing in index funds.
How to Investing in S&P 500 Index Funds
Investing in an S&P 500 index fund may sound daunting, but it’s surprisingly straightforward. Whether you’re a novice investor or seasoned pro, here’s a beautifully laid-out guide to help you navigate the process effortlessly:
1. Find Your Ideal S&P 500 Index Fund
Selecting the right S&P 500 index fund is crucial. Start by considering two key factors:
Expense Ratio: Look for funds with low expense ratios, which represent the annual fees charged by the fund manager. S&P 500 index funds typically have minimal expense ratios, often below 0.10% annually.
Sales Load: For mutual funds, check if there’s a sales load, a commission charged by the fund manager. Avoid funds with sales loads, especially when investing in index funds. ETFs do not charge sales loads.
Choose a fund that aligns with your budget and investment goals. Here are five of the best S&P 500 index funds to consider, each offering competitive expense ratios.
2. Access Your Investing Account or Open a New One
Whether it’s a 401(k), IRA, or a regular brokerage account, ensure your chosen investment platform supports the purchase of mutual funds or ETFs. If you don’t have an account yet, opening one takes just minutes. Look for brokers offering a wide range of investment options without transaction fees or commissions.
3. Determine Your Investment Amount
Investing doesn’t require vast wealth, but having a plan is crucial. Determine how much you can comfortably invest and commit to regularly adding funds to your account. Seek brokers with low fees to maximize your investment potential.
4. Execute Your Purchase
Once you’ve selected your preferred S&P 500 index fund and decided on your investment amount, it’s time to make the purchase. Follow your broker’s intuitive trade entry form, inputting the fund’s ticker symbol and desired number of shares based on your investment amount.
Consider setting up a recurring investment schedule if your broker offers this feature. This allows you to automate your investments, taking advantage of dollar-cost averaging to reduce risk and potentially increase returns over time.
I roughly have 11% of my income left over to invest, is it better to A.) park the additional 11% in the 401k or B.) invest the 11% in a traditional brokerage account?
Deciding between maximizing your tax-advantaged retirement accounts further or investing in a traditional brokerage account depends on your financial goals, risk tolerance, and time horizon. Here’s a breakdown to help you decide:
A) Contributing to your 401(k):
Tax Advantages: Contributions to your 401(k) are tax-deferred, meaning they reduce your taxable income for the year, potentially lowering your tax bill. However, withdrawals during retirement are taxed as ordinary income.
Employer Match: If your employer offers a match, contributing more to your 401(k) can mean taking full advantage of “free money” from your employer, which can significantly boost your retirement savings.
Limited Investment Options: 401(k) plans typically offer a limited selection of investment options compared to a brokerage account, which may limit your investment choices.
Penalties for Early Withdrawal: Keep in mind that accessing funds in your 401(k) before retirement age (usually 59 ½) may incur penalties.
B) Investing in a Traditional Brokerage Account:
Flexibility: A brokerage account offers more flexibility in terms of investment choices compared to a 401(k). You can invest in individual stocks, bonds, mutual funds, ETFs, and more.
No Contribution Limits: Unlike retirement accounts, brokerage accounts have no contribution limits, allowing you to invest as much as you want.
Tax Considerations: While you won’t receive upfront tax benefits like with a 401(k), investments in a brokerage account can qualify for long-term capital gains tax rates if held for more than a year, which are often lower than ordinary income tax rates.
Access to Funds: Unlike a 401(k), you can access funds in a brokerage account at any time without penalties or restrictions.
Considerations:
Diversification: Regardless of your choice, diversification is crucial for managing risk. Spread your investments across asset classes and sectors to minimize risk.
Emergency Fund: Ensure you have an adequate emergency fund in place before investing in a brokerage account to cover unexpected expenses.
Financial Goals: Consider your short-term and long-term financial goals. If you prioritize saving for retirement, maximizing contributions to tax-advantaged accounts may be more beneficial. If you have other financial goals or want more flexibility with your investments, a brokerage account could be preferable.
Given your situation, if you’ve maxed out your tax-advantaged retirement accounts and have additional funds to invest, it’s generally advisable to invest in a traditional brokerage account. This allows for flexibility in investment choices, potential tax advantages on capital gains, and easy access to funds without penalties.
However, ensure you have an adequate emergency fund in place and consider consulting a financial advisor for personalized advice.
Bottom line
Investing in S&P 500 index funds is a simple yet powerful way to participate in the growth of America’s largest and most successful companies. By following these steps, you can embark on your investment journey with confidence, knowing that you’re making informed decisions to secure your financial future. Start investing today and unlock the wealth-building potential of the stock market.
