Investing in an S&P 500 index fund is a simple approach to get immediate publicity to lots of of the biggest corporations within the U.S. in a single funding automobile.
All S&P 500 funds are basically invested in the identical shares, so selecting the “least expensive” one (the one with the bottom expense ratio) is the best way to go.
You’ll want a brokerage account to put money into an index fund, which you’ll be able to open free of charge.
Mutual funds and ETFs that monitor the Commonplace & Poor’s 500 index are among the many hottest investments — and it’s little surprise why. The S&P 500 index has achieved a median complete return of about 10% yearly since 1960. Even adjusting for inflation, the S&P 500 has produced a median complete return of greater than 6% yearly.
The S&P 500 is made up of the five hundred largest corporations within the U.S. by market capitalization. Legendary investor Warren Buffett has lengthy suggested traders to purchase and maintain an S&P 500 index fund, as a substitute of attempting to choose shares. When you’re contemplating selecting one in your portfolio, right here’s what you’ll have to know to get began.
An index mutual fund or exchange-traded fund (ETF) is an funding that comprises a set of all of the shares which are a part of a specific index. Whenever you purchase an S&P 500 index fund, you’re buying a small portion of shares in all the businesses included in that index.
The S&P 500 index is considered because the bellwether of the U.S. inventory market. It comprises 500 of the biggest corporations within the U.S., and when traders speak about “beating the market,” the S&P 500 is commonly thought of the benchmark.
The only function of S&P 500 index funds is to imitate the composition and efficiency of the index. There isn’t any fund supervisor on the helm selecting which shares to purchase or promote; changes within the holdings occur solely when the underlying index adjustments. And since they’re passively managed investments, traders save some huge cash on administrative and different charges.
Study extra: Low-cost index funds: A newbie’s information
It’s surprisingly simple to purchase an S&P 500 fund. You’ll be able to arrange your account to purchase the index fund on autopilot, so that you’ll virtually by no means have to watch the account, or you possibly can enter your trades manually.
It’s simple to search out an S&P 500 index fund, even if you happen to’re simply beginning to make investments.
A part of the fantastic thing about index funds is that they’ll have precisely the identical shares and weightings as one other fund based mostly on the identical index. In that sense, it will be like selecting amongst 5 McDonald’s eating places serving precisely the identical meals: which one would you go together with? You’d in all probability choose the restaurant with the bottom worth, and it’s often the identical with index funds.
Listed below are three key standards for choosing your fund:
Expense ratio: To find out whether or not a fund is cheap, you’ll wish to take a look at its expense ratio. That’s the associated fee that the fund supervisor will cost you over the course of the 12 months to handle the fund as a share of your funding within the fund.
Gross sales load: When you’re investing in mutual funds, you’ll additionally wish to see if the fund supervisor fees you a gross sales load, which is a elaborate identify for a gross sales fee. You’ll wish to keep away from this type of expense fully, significantly when shopping for an index fund. ETFs don’t cost gross sales masses.
Funding location: When you’re investing in a taxable brokerage account (slightly than a retirement account), understand that ETFs are extra tax-efficient than equal index mutual funds. Shopping for an ETF in a taxable brokerage account will supply higher after-tax returns over the long-term.
S&P 500 index funds have among the lowest expense ratios in the marketplace. Index investing is already cheaper than virtually every other form of investing, even if you happen to don’t choose the most affordable fund. Many S&P 500 index funds cost lower than 0.10% yearly. At that price, you’ll pay solely $10 yearly for each $10,000 you have got invested within the fund.
Some funds are even cheaper than that. Listed below are 4 of the finest S&P 500 index funds, together with one which’s utterly fee-free:
Fund | Expense ratio | 5-year annualized return
(as of Jan. 22, 2026) |
|---|
Constancy ZERO Giant Cap Index Fund (FNILX) | 0% | 13.69% |
Vanguard S&P 500 ETF (VOO) | 0.03% | 14.10% |
iShares Core S&P 500 ETF (IVV) | 0.03% | 14.10% |
Schwab S&P 500 Index Fund (SWPPX) | 0.02% | 14.10% |
In investing, particularly with passive index funds, paying extra doesn’t all the time translate into higher returns. The truth is, the connection between charges and returns is commonly reversed. Since these funds are largely the identical, your selection will not be a “make or break” determination — you possibly can anticipate to get the efficiency of the index, no matter that’s, minus the expense ratio or any charges you’re paying. So prices are an essential consideration right here.
Choose your fund and be aware its ticker image, a code of three to 5 letters.
After you’ve chosen your index fund, you’ll wish to entry your investing account, whether or not it’s a 401(okay), an IRA or an everyday taxable brokerage account.
When you don’t have an account, you’ll have to open one, which you are able to do in quarter-hour or much less. Listed below are 4 steps to take action:
Select a supplier. See Bankrate’s record of finest on-line brokers for mutual fund investing for a variety that features many with no account minimums and plenty of no-commission mutual funds and ETFs.
Present some fundamental info (identify, Social Safety quantity or tax ID).
Select an account kind (an everyday taxable brokerage account or an IRA).
Fund your account (switch cash straight from a checking account into the brokerage account).
You don’t need to be rich to start investing, however it’s best to have a plan. And that plan begins with determining how a lot you’re capable of make investments. You’ll wish to add cash repeatedly to the account and goal to carry it there for a minimum of three to 5 years to permit the market sufficient time to rise and recuperate from any main downturns.
When you’ve discovered how a lot you possibly can make investments, transfer that cash to your account. Then arrange your account to repeatedly switch a desired quantity every week or month out of your financial institution or a paycheck direct deposit.
As soon as you realize the S&P index fund you wish to purchase and the way a lot you’re capable of make investments, shopping for an index fund is comparatively easy.
Right here’s the way it works:
Seek for your index fund: Discover the S&P 500 index fund you wish to purchase in your dealer’s web site. We mentioned a number of in style choices earlier.
Place an order: Select the variety of shares or greenback quantity you wish to buy. If shopping for an ETF, you might be able to select between market orders and restrict orders.
Maintain and monitor: Periodically examine your fund’s efficiency, reminiscent of on a month-to-month or quarterly foundation
When you’re capable of transfer cash into the brokerage account repeatedly, many brokers mean you can arrange an investing schedule to purchase an index fund on a recurring foundation. It is a nice possibility for traders who don’t wish to bear in mind to position an everyday commerce. You’ll be able to set it and neglect it.
Because of this, you’ll have the ability to make the most of the advantages of dollar-cost averaging, which might help you scale back threat and improve your returns.
There are a couple of key variations between an S&P 500 index fund and the underlying index. There isn’t any approach to put money into the underlying index, solely the funds that mirror it. This may result in slight variations in efficiency as a result of following:
Expense ratio: Funds have administration charges that may scale back returns.
Monitoring error: Small discrepancies in efficiency attributable to precise holdings and buying and selling of the person corporations.
Money drag: Funds (significantly mutual funds) maintain money to accommodate traders who promote shares.
Tax inefficiencies: Index mutual funds will move on any annual capital positive factors from different traders’ gross sales, which can be taxable no matter whether or not a given investor has made a sale or not.
S&P 500 index funds have grow to be extremely in style with traders, and the explanations are easy:
Possession of many corporations: These funds mean you can maintain a stake in lots of of shares, even if you happen to personal only one share of the index fund.
Diversification: This broad assortment of corporations means you decrease your threat via diversification. The poor efficiency of 1 firm gained’t harm you as a lot while you personal many corporations.
Low value: Index funds are usually low value (that means they’ve low expense ratios) as a result of they’re passively managed, slightly than actively managed. Because of this, extra of your hard-earned {dollars} are invested as a substitute of paid to fund managers as charges.
Strong efficiency: Your returns will successfully equal the efficiency of the S&P 500, which has traditionally been about 10% yearly on common over lengthy durations.
Straightforward to purchase: It’s a lot easier to put money into index funds than it’s to purchase particular person shares, as a result of it requires little time and no investing experience.
S&P 500 index funds have a number of benefits that may enchantment to most long-term traders; nevertheless, it’s essential to acknowledge the potential downsides.
Right here’s one drawback: S&P 500 index funds, by design, are restricted to large-cap corporations. This implies you gained’t have publicity to different market segments, reminiscent of small-cap and mid-cap shares, bonds and actual property.
For traders who wish to preserve their investments easy, “complete inventory market” index mutual funds and ETFs supply publicity to the breadth of the U.S. inventory market, together with smaller capitalization shares. All-world indices will embody worldwide shares alongside U.S. shares. Lastly, target-date or target-allocation funds, whereas often not passive indices, are constructed to be single-fund options for traders who desire a complete portfolio in a single neat package deal. These funds are extra pricey however actually supply a hands-off method.
Study extra: The ten finest investments of 2026
What’s the finest S&P 500 index fund?
There isn’t any single finest S&P 500 index fund. Every invests within the 500 largest U.S. corporations, making all S&P 500 index funds fairly comparable in efficiency. As a result of efficiency is comparable, traders ought to search for a fund with minimal charges at one in all their most popular brokers.
What if I had invested $1,000 within the S&P 500 10 years in the past?
The quantity you’ll have on this state of affairs is dependent upon a couple of variables, reminiscent of whether or not you selected to reinvest dividends and which fund you chose, however $1,000 invested over the 10-year interval from 2016 via 2025, with dividends reinvested, would have grown to roughly $4,200, a 15.6% nominal annual return. (However don’t neglect that previous efficiency isn’t a assure of future returns.)
Ought to I make investments all my 401(okay) within the S&P 500?
It’s typically not advisable to take a position your 401(okay) fully within the S&P 500. Monetary advisors suggest diversifying your portfolio with different investments, reminiscent of small-cap shares, worldwide shares and bonds.
Nearly all of 401(okay) plans will embody numerous index mutual funds on the funding menu, however there is no such thing as a realizing what, particularly, will likely be obtainable to you in your office retirement plan. Many plans nowadays do supply entry to target-date funds, that are an all-inclusive diversified retirement portfolio (the “goal date” is the 12 months you intend to retire). However if you happen to’re not sure the best way to make investments, the most effective wager, if attainable, is to debate your funding decisions with a monetary advisor who understands your funds and funding targets.
Shopping for an S&P 500 index fund generally is a sensible determination in your portfolio, and that’s one motive that Warren Buffett has persistently beneficial it to traders. It’s simple to discover a low-cost fund and arrange a brokerage account, even if you happen to solely have fundamental data of what to do. You then’ll have the ability to benefit from the strong efficiency of the S&P 500 over time.
— Bob Haegele contributed to this text.
Editorial Disclaimer: All traders are suggested to conduct their very own impartial analysis into funding methods earlier than investing determination. As well as, traders are suggested that previous funding product efficiency isn’t any assure of future worth appreciation.
