The Best S&P 500 Index Funds

The Standards & Poor’s 500 Index, commonly known as S&P 500, is a market capitalization index of the 505 large-cap companies in the US. These companies’ market capitalization makes up 80% of US equity. The S&P 500 is one of the most highly regarded index and benchmark for large-cap equities in the US.

Many of the top players of different industries in the market can be found in the S&P 500. Some of these include Alphabet Inc. (GOOG), Microsoft Corp. (MSFT), Facebook Inc. (FB), Apple Inc. (APPL), and Amazon.com Inc. (AMZN).

There are also funds such as mutual funds and exchange-traded funds (ETFs) that are designed to passively track the S&P 500.

When it comes to selecting S&P 500 Index funds, the best to look out for are those with very low expense ratios, especially when comparing funds tracking the same index. Usually, the funds with the lowest expense ratios tend to generate more returns over time. Assuming an index fund has an expense ratio of 0.30% and a fund that tracks the same index has an expense ratio of 0.20%, the second fund has a 0.10% advantage over the fund with a higher expense ratio. To identify a fund with a very low expense ratio, funds that track the same index must be compared.

Other factors to consider are performance while tracking the index and high assets under management.

The amount of assets under management (AUM) an index fund has, tells the value of the company, especially when it has to do with liquidity in ETFs. High assets under management work to the advantage of investors. Whereas, low assets under management can create wider swings in the bid/ask spread. It also puts investors at a disadvantage by increasing price volatility.

The purpose of the S&P 500 Index fund is not to outperform the index, but rather match it. Index funds were designed to imitate the performance of the index. To achieve this, the fund must hold the same stocks as the S&P 500. The best performing stock index funds will match a list of stocks represented in the S&P 500.

Going by these factors, the three best S&P 500 funds to look out for are:

• SDPR S&P 500 (SPY): This is the most regarded index fund in the US. It was also the first US-listed ETF in January 1993, and one of the largest in the market today. It has a high asset under management of $258 billion with an expense ratio of 0.0945%.

• Vanguard 500 Index (VFIAX): The Vanguard 500 index is a great choice for individual investors who would like to invest in the S&P 500 using a mutual fund. It also has an expense ratio of 0.04%

• iShares Core S&P 500 (IVV): iShares is also one of the top ETFs trading on the market today, with high assets under management (AUM) of $177 billion, and a low expense ratio of 0.04.