Index funds have been a preferred investment vehicle for buy and hold investors since John Bogle of Vanguard introduced the first in 1976. Okay, they weren’t exactly a hit when first introduced but they certainly caught on. Now there’s a newer type of index fund on the market that has become popular, and it’s called an exchange-traded fund, or ETF. That prompted us here at Study Finds to search the web for the consensus best S&P 500 ETFs to invest in. We found the top three choices of financial pros, and we’ve compiled them here for you.
ETFs, like regular index funds, are “baskets” of stocks (bonds, or both), with S&P 500 ETFs being a basket of the top 500 large-cap companies, but they do not trade like a typical index fund. ETFs trade just like individual stocks, meaning they can be bought and sold intra-day. Standard index fund trades are processed after market close.
But are ETFs better than their predecessors? Both have pros and cons, of course; and many standard index funds can now be found in ETF form. That said, it’s worth comparing expense ratios to see which form of the fund is cheaper.
You’ll also want to look at portfolio turnover for both types of funds to see how often the managers make changes. If holdings change often – portfolio managers buy and sell often – it can trigger taxable events. This will in turn cause a distribution of capital gains (taxable event), so you’ll want to check each fund’s history to see how often this has happened. But many index funds and ETFs are passively managed, meaning managers don’t make many changes. You’ll just want to check how a fund is managed before investing.
If you watch the market daily, and tend to be trigger happy, ETFs may be dangerous. Where you can trade them just like stocks it may be tempting to day trade them. Index funds have a built-in safety mechanism where your trades will not be executed in real time. For buy-and-hold investors, ETFs may make it more difficult to stick with the long game. One more point to keep in mind is that though these ETFs listed below will contain the same companies, they may not contain the same percentage of shares for each company. But you can check each fund’s holdings to see how much weight is given to each company.
The List: Best S&P 500 ETFs, According To Pros
1. iShares Core S&P 500 ETF (IVV)
“Because index-tracking ETFs follow the performance of the S&P 500 index, one of the most important determinants of long-term returns is how much a fund charges in fees,” writes Investopedia. You’ll want to take note of each funds’ management fees because those fees eat into your returns.
This ETF certainly does keep costs low with an expense ratio of just 0.03%. This means that you’ll pay $3 annually for every $10,000 you have invested.
And if you are a buy and hold investor looking to pay Uncle Sam as little as possible, Benzinga writes, “IVV is a great core holding for any long-term portfolio and you’ll save at tax time thanks to the fund’s structure. iShares’ fund advisors claim to have never paid capital gains in a decade and instead, deliver qualified dividends where high earners pay less in taxes.”
2. State Street SPDR S&P 500 ETF Trust (SPY)
If you’re looking for a fund that’s been around and been tested by the market, Forbes writes, “the State Street SPDR S&P 500 ETF is not only the oldest U.S. listed exchange-traded fund, but it also typically has both the largest assets under management (AUM) and highest trading volume of all ETFs.”
High trading volume means liquidity – if you need to buy or sell you will most likely have no problem doing so, and quickly. If you invest in funds that don’t have high trading volumes, you may not find any buyers if you’re trying to sell. Or you could end up with the opposite issue where there may not be shares available for purchase when you’re in the market.
Another fee you’ll want to check into is whether your brokerage charges commission fees when you buy or sell funds. Fortunately, as Nerdwallet points out, “many of the best brokers for ETF investing offer hundreds of commission-free ETFs, but the specific fund list varies broker to broker. Fortunately, most major brokerages no longer charge commissions on ETF, stocks or options trades.”
3. Vanguard 500 Index Fund ETF (VOO)
A trusted name in investing, Vanguard funds perform notoriously well and are a staple in many investors’ portfolios. “This ETF began trading in 2010, and it’s backed by Vanguard, one of the powerhouses of the fund industry,” writes Bankrate.
Bankrate also notes who this fund is suited for: “Great for investors looking for a broadly diversified index fund at a low cost to serve as a core holding in their portfolio.”
And if you’re wondering what kind of returns the S&P 500 has generated: “At the S&P 500’s rate of return, a $10,000 investment made in early 2017 would have grown to $23,340 by the end of 2021,” writes The Motley Fool. Not too shabby.
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