S&P 500 index funds can help you instantly diversify your portfolio by providing exposure to some of the biggest companies in the U.S.
Index funds in general are fairly inexpensive compared with other types of mutual funds, making them an attractive option for most investors.
What's the best S&P 500 index fund?
The best S&P 500 index fund for you will depend on its minimum investment, costs and how closely it aligns to the S&P 500 market index.
Index fund | Minimum investment | Expense ratio |
|---|---|---|
Vanguard 500 Index Fund - Admiral Shares (VFIAX) | $3,000. | 0.04%. |
Schwab S&P 500 Index Fund (SWPPX) | No minimum. | 0.02%. |
Fidelity 500 Index Fund (FXAIX) | No minimum. | 0.015%. |
Fidelity Zero Large Cap Index (FNILX) | No minimum. | 0.0%. |
T. Rowe Price Equity Index 500 Fund (PREIX) | $2,500. | 0.20%. |
Data current as of April 2, 2024. For informational purposes only.
What is an S&P 500 index fund?
An S&P 500 index fund is a fund that tracks the — a market index that measures the performance of about 500 U.S. companies.
Index funds by definition aim to mirror a particular market index, whether that is the Dow Jones Industrial Average, the Nasdaq Composite Index or the S&P 500. Since they contain largely the same investments, an index fund will likely perform similarly to how the overall market index performs.
Advertisem*nt
Charles Schwab | Interactive Brokers IBKR Lite | J.P. Morgan Self-Directed Investing |
|---|---|---|
NerdWallet rating 4.9/5 | NerdWallet rating 5.0/5 | NerdWallet rating 4.1/5 |
Fees $0 per online equity trade | Fees $0 per trade | Fees $0 per trade |
Account minimum $0 | Account minimum $0 | Account minimum $0 |
Promotion None no promotion available at this time | Promotion None no promotion available at this time | Promotion Get up to $700 when you open and fund a J.P. Morgan Self-Directed Investing account with qualifying new money. |
Learn More | Learn More | Learn More |
Why are S&P 500 index funds popular?
S&P 500 index funds are popular in part because they can instantly diversify a portfolio. With a single asset, you are invested in 500 of the largest companies in the U.S., covering many types of industries and sectors.
How many S&P 500 index funds do I need?
S&P 500 index funds will be nearly identical to one another in terms of their performance and their holdings, or the particular stocks held within the fund. Investing in multiple S&P 500 index funds will not necessarily further diversify your portfolio. Depending on the fund, some index funds will invest in a small portion of an index while others may track the entire index. Be sure to look at a fund’s holdings to know exactly how close your fund is tracking its benchmark index.
If you have one index fund and want to diversify further, you could consider exploring index funds that cover other market indexes, such as the Dow Jones or Nasdaq.
» Learn more about index funds
How to choose an S&P 500 index fund
While most S&P index funds will have similar holdings, they may vary in terms of their fees, such as expense ratios. Expense ratios are annual fees you pay to help cover a fund’s expenses. If you invest in a fund with a 0.25% expense ratio, you’ll pay $2.50 annually for every $1,000 invested. That may not sound like much, but if your account balance grows, so will that fee.
Consider looking for S&P 500 index funds with low expense ratios, several years of operation and a healthy amount of assets under management (AUM). The longer a fund has existed, the more information you have about its performance history. If a fund is only a few years old, it's hard to know how it would perform in a different type of market (though past performance does not indicate future performance).
A fund’s assets under management can give you a sense of the size of a fund. If a fund has a relatively high AUM, it may indicate that the fund may be more stable in volatile markets.
Track your finances all in one place
Find ways to invest more by tracking your income and net worth on NerdWallet.
How to invest in the S&P 500
You cannot invest in the S&P 500 itself. S&P 500 index funds are one option for investing in the S&P 500. You could also invest in the individual stocks represented in the S&P 500, but that would be much more work because you’d have to monitor the performance of each individual stock yourself.
If you’re ready to get started investing in either S&P 500 index funds or individual company stocks, you’ll need to first open a brokerage account.
» Check out the best brokerage accounts for mutual funds
What’s the difference between S&P 500 index funds and S&P 500 ETFs?
The biggest difference between and S&P 500 index funds is that exchange-traded funds (ETFs) can be traded throughout the day like stocks, while index funds can only be bought and sold at the price set at the end of the trading day. S&P 500 funds, whether they are index funds or ETFs, both track the S&P 500.
If you’re investing for the long term — meaning you’re buying and holding the funds for five years or more — this difference won’t matter much. But ETFs are generally more tax-efficient than index funds.
» Learn more about index funds vs. ETFs
Frequently asked questions
Is the S&P 500 the best index to invest in?
The S&P 500 offers investors a lot of diversification (it contains hundreds of companies) and also a lot of clout (all of its components are large-cap stocks). There are other indexes to consider if you want to focus on one of those qualities. A Russell 2000 index fund will contain thousands of small-cap stocks, while a Dow Jones Industrial Average index fund will contain just a few dozen blue-chip stocks.
Do I need anything in my portfolio besides S&P 500 index funds?
Investing solely in one S&P 500 index fund might be a bit too minimalist for many people, but there are popular simple portfolios that only consist of a few index funds.
