Nearly all ETFs track indexes — and index investing is a strategy that has proven its worth over the decades. Of all the indexes an ETF can mirror, the S&P 500 remains the standard-bearer benchmark for the overall stock market.
It represents the 500 largest U.S.-based companies, which collectively account for roughly 80% of all available global market capitalization — as goes the S&P 500, so goes the stock market as a whole.
There was a time when investors would have had to buy individual shares of all 500 companies if they wanted to match the index’s performance. But today, a single share of a single ETF can buy modern investors a slice of every single one.
What Is the Best ETF for the S&P 500?
An ETF that tracks the S&P 500 is the quintessential index investment — for many investors, shares in one comprise their entire portfolio. Since they’re passively managed funds designed to mirror the underlying index, S&P 500 ETFs are inherently very similar. Here’s what you need to know about the subtle differences, which will help investors decide which fund is right for them.
1. State Street SPDR S&P 500 ETF (SPY)
- Expense ratio: 0.0945%
In January 1993, State Street started the ETF revolution when it debuted the SPDR S&P 500 ETF, history’s first U.S.-listed exchange-traded fund. Three decades later, the mother of the ETF movement remains the gold standard of S&P 500 index funds.
SPY boasts the highest trading volume and the largest amount of assets under management (AUM) — not just among S&P 500 funds, but among all ETFs, in general. Like all S&P 500 ETFs, its holdings represent all 11 GICS sectors and roughly two dozen industries. Also, like the rest of the bunch, it pays a dividend that roughly mirrors the index — SPY’s 30-day SEC yield is currently 1.51%.
2. Vanguard S&P 500 ETF (VOO)
- Expense ratio: 0.03%
Vanguard is the world’s No. 2 biggest investment firm and issuer of ETFs, second only to BlackRock and its iShares brand.
Even more important than its size is Vanguard’s unique ownership structure. In 1975, Vanguard disrupted the industry with a new model that gave the reins not to outside investors, but to its own shareholders. The company is owned by its funds, which are owned by the people who buy them. The model — which Vanguard says lowers expenses and eliminates conflicts of interest — remains unique in the asset-management industry.
Which ETF Is Better, VOO or SPY?
“Better” is in the eye of the investor. Some might be attracted to the sheer size of State Street, while others might prefer Vanguard’s investor-forward ownership structure. But one thing that is not subjective in the VOO vs. SPY rivalry is the huge gap between their expense ratios — more on that further down the page.
Is Vanguard S&P 500 ETF a Good Investment?
Vanguard has earned legions of loyal fans through its unique ownership structure and dirt-cheap funds, which cost next to nothing to own. But other players offer similar benefits.
3. iShares Core S&P 500 ETF (IVV)
- Expense ratio: 0.03%
SPY and VOO are probably the two most recognizable names in the S&P 500 ETF game — but they’re hardly alone. No investment firm in the world is bigger than BlackRock, and its iShares family of ETFs is among the world’s biggest and most trusted family of funds.
With a history dating back to March 2000, IVV is one of the oldest funds and the only S&P 500 ETF with greater AUM than SPY. Like VOO, it closely mirrors SPY, but at less than a third of the cost.
4. State Street SPDR Portfolio (SPLG)
- Expense ratio: 0.03%
SPLG holds the same 505 companies as State Street’s flagship ETF. The difference is in liquidity — SPLG has far less AUM and a much lower trading volume than SPY. For investors, those factors translate into much lower costs, both in the purchase price and long-term ownership expenses. SPLG currently trades for around $48 per share compared to SPY, which trades for nearly 10 times more at $410 per share. It also reduces the expense ratio by more than a third from nearly 0.1% to a minuscule 0.03%.
5. Schwab S&P 500 Index Fund (SWPPX)
- Expense ratio: 0.02%
First listed in 1997, Schwab’s offering has one of the longest tenures on the market — but it stands out for another reason. Its expense ratio beats just about every fund that money can buy — index investors can’t get much closer to free than 0.02%.
What Is the Cheapest S&P 500 ETF?
The cheapest ETF is the one with the lowest expense ratio, which is the fee investors pay for portfolio management. Since they’re passively managed, ETFs typically have much lower expense ratios than traditional actively managed mutual funds — but pinch your pennies where you can because those fees add up over time.
A fund with a 0.5% expense ratio charges $50 for every $10,000 invested. On the other hand, an ETF with a 0.03% expense ratio charges just $3 for every $10,000 invested.
Expense ratios aren’t the only consideration when choosing an index ETF, but they should be at the top of the list.
The biggest S&P 500 ETFs mirror the performance of the underlying index — but there are many available variations. For example, NOBL isolates only the index’s so-called Dividend Aristocrats, the companies that have increased their shareholder payouts for at least 25 years straight. The IVW fund tracks the S&P companies that are primed for growth — about half of those on the index. The RSP fund tracks the S&P 500 but balances its holdings in a way that more closely mirrors mid-cap stocks.
Variations like these offer opportunities to target specific niches within the index, but they typically come with higher expense ratios and greater volatility.
Data is accurate as of Feb. 13, 2023, and is subject to change.