In our previous blog posts, we explored the benefits of passive investing and the rise of passive investing in recent years. Today we will introduce one of the most popular passive investing options - S&P 500 ETFs/Funds.
What?
The S&P 500 index, created and managed by Standard & Poor's, is a market index that measures the stock performance of 500 of the largest companies listed on stock exchanges in the United States. It is widely regarded as one of the best single gauges of large-cap U.S. equities.
So What?
Investing in the S&P 500 index offers numerous benefits, making it an appealing choice for a wide range of investors:
Diversification: The index provides diversified exposure across multiple sectors, which helps mitigate sector-specific risks.
High Quality & High Performance: The S&P 500 is often seen as a benchmark of high-quality stocks, historically delivering robust long-term returns and acting as a reliable measure of the most successful and stable companies in the U.S. market.
Accessibility: It's also highly accessible through various financial products like mutual funds and ETFs, allowing investors easy entry without the need to pick individual stocks.
Cost Efficiency: Moreover, many S&P 500 index funds and ETFs feature low expense ratios, making them a cost-effective alternative to actively managed funds.
Simplicity: Lastly, their simplicity makes them ideal for both novice investors and those who favor a passive investment strategy, simplifying the process of building a robust investment portfolio with ease.
Now What?
If you are interested in investing in the S&P 500 index, there are many options. I present 5 good options to consider in the table below.
Name | Symbol | Type | Inception | Total Net Assets (As of 5/10/2024) | Annualized 5-Year Return (as of 5/9/2024) | TTM Yield (as of 5/10/2024) | Expense Ratio |
SPDR S&P 500 ETF Trust | SPY | ETF | 1/22/1993 | $498.1 B | 13.1% | 1.34% | 0.0945% |
iShares Core S&P 500 ETF | IVV | ETF | 5/15/2000 | $435.5 B | 13.2% | 1.37% | 0.03% |
Vanguard S&P 500 ETF | VOO | ETF | 9/7/2010 | $425.6 B | 13.2% | 1.39% | 0.03% |
SPDR Portfolio S&P 500 ETF | SPLG | ETF | 11/8/2005 | $33.6 B | 13.2% | 1.40% | 0.02% |
Fidelity ZERO Large Cap Index | FNILX | Mutual Fund | 9/13/2018 | $8.8 B | 13.3% | 1.26% | 0% |
The top 3 ETFs (SPY, IVV, and VOO) are the titans in the ETF world due to their enormous popularity and gigantic total net assets. Since all of the above 5 choices closely follow the S&P 500 index the performance is very similar, with 5-year annualized returns from 13.1% to 13.3%. Note the slight difference in performance is mainly driven by the expense ratio. SPY has the highest expense ration of 0.0945%, resulting in the lowest 5-year annualized return of 13.1%.
If you are a Fidelity customer, FNILX can be a good option since there is no fee associated with this mutual fund although the yield is a little lower than the other options. State Street saw that its flagship SPY was losing some steam with long term investors who wanted a lower expense ratio, so it created SPLG. SPLG's expense ratio is only 0.02% beating out SPY (0.0945%), IVV (0.03%) and VOO (0.03%).
Concluding Remarks
Investing in the S&P 500, whether through ETFs or index funds, remains a cornerstone strategy for those seeking to build long-term wealth. Considering the performance and yields are similar across these products above, cost becomes an important factor—investors should look closely at expense ratios to maximize their returns. By focusing on cost-efficient options and the benefits of diversification, investing in S&P 500 ETFs/Funds can efficiently boost your financial future in the long term.
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