Charles schwab s and p 500 index fund

Updated: Oct 4, 2022, 4:17pm

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S&P 500 index funds are an excellent way to get diversified exposure to the heart of the U.S. stock market. These passively managed funds track the large-cap stocks that represent approximately 80% of the total value of the U.S. equity market.

There are plenty of index funds out there that track the S&P 500, but these three options charge ultra-low expense ratios, which means more of your money stays at work in the fund earning your greater returns. In addition, all three funds closely duplicate or exceed the historical performance of their benchmark index.

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Show Summary

• The Best S&P 500 Index Funds of 2022
• Fidelity 500 Index Fund (FXAIX)
• Schwab S&P 500 Index Fund (SWPPX)
• Vanguard 500 Index Fund Admiral Shares (VFIAX)
• Methodology
• What Are S&P 500 Index Funds?
• How to Choose an S&P 500 Index Fund
• What’s the Difference Between Index Funds and ETFs?
• Next Up in Retirement

The Best S&P 500 Index Funds of 2022

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Fidelity 500 Index Fund (FXAIX)

Expense Ratio

Minimum Investment

5-Year Trailing Returns

Expense Ratio

Minimum Investment

5-Year Trailing Returns

Why We Picked It

Fidelity’s S&P 500 index fund is the least expensive offering on our list, charging a miniscule annual expense ratio of 0.015%. FXAIX posts returns that have historically outperformed its benchmark index, and it offers a 1.72% dividend yield that’s pretty competitive.

The Fidelity 500 Index Fund should appeal to any investors looking for a single core holding, and it lacks a minimum investment amount for all account types. The fund, however, has a comparatively brief performance history that could deter some who are more confident with a fund that’s been through multiple economic cycles.

• Fund inception date: May 4, 2011
• Assets under management: $326 billion
• Dividend yield: 1.72%

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Schwab S&P 500 Index Fund (SWPPX)

Expense Ratio

Minimum Investment

5-Year Trailing Returns

Expense Ratio

Minimum Investment

5-Year Trailing Returns

Why We Picked It

Charles Schwab’s S&P 500 index fund offers an expense ratio that’s only ever so slightly higher than Fidelity’s offer but comes with the benefit of more than two decades of performance history. This could be a big plus for investors who are willing to pay a bit more for a fund with a longer track record, competitive historic returns compared to the S&P 500 and a nice 1.54% dividend yield.

The $0 investment minimum for all account types helps make SWPPX a top consideration for earlier-stage investors looking to access large-cap holdings without the stress of choosing individual stocks.

• Fund inception date: May 19, 1997
• Assets under management: $57.9 billion
• Dividend yield: 1.54%

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Vanguard 500 Index Fund Admiral Shares (VFIAX)

Expense Ratio

Minimum Investment

5-Year Trailing Returns

Expense Ratio

Minimum Investment

5-Year Trailing Returns

Why We Picked It

Vanguard is one of the biggest names in the industry, and its S&P 500 index fund historically outperforms the benchmark index. Offering a dividend yield of 1.76% and a next-to-nothing expense ratio, investors could do far worse than this fund with an impressive two-decade-long performance history.

For some investors, the $3,000 investment minimum can be steep, even when investing with individual retirement funds (IRAs). Those looking for a lower-cost point of entry can check out Vanguard’s counterpart S&P 500 exchange-traded fund (ETF), VOO.

• Fund inception date: November 13, 2000
• Assets under management: $247 billion
• Dividend yield: 1.76%

*All data is sourced from Morningstar, current as of Oct. 4, 2022.

Methodology

Our methodology focused on more than a dozen index funds that aim to track the S&P 500. We excluded from consideration actively managed funds as they tend to charge higher expense ratios without delivering better returns or dividend yields. In addition, we excluded ETFs, which are covered in a separate listing.

In evaluating S&P 500 index funds, we focused on several key factors. Using data provided by Morningstar and fund management companies, we evaluated each candidate fund’s returns, expense ratio and dividend yield. We included funds that offered very low fees, that provided returns that closely matched or exceeded the performance of their benchmark index and that posted respectable dividend yields. In addition, we gave precedence to funds with low or zero minimum investment requirements.

What Are S&P 500 Index Funds?

The S&P 500 index tracks the performance of 500 of the largest U.S. public companies by market capitalization, or the total value of their publicly traded outstanding shares. Because it gives companies proportional sway over the index’s performance based on their market cap, the S&P 500 is strongly influenced by the performance of its largest companies.

The S&P 500 is widely recognized to be the chief benchmark for performance of large-cap stocks in the U.S. Companies are considered to be large-cap stocks if their total market capitalization is $10 billion or more.

Index funds that track the S&P 500 own stocks included in the index to mimic the performance of the index as closely as possible. Like all index funds, they are passively managed, which means that fund managers only buy and sell stocks to keep the fund’s asset allocation in line with the benchmark. Index funds do not engage in fund research to try to beat the market; they simply strive to match it.

How to Choose an S&P 500 Index Fund

There are many S&P 500 index funds available in the market, so it’s important to keep a few criteria to pick the right one for your portfolio. You’ll want to think about:

• Expense ratio. As index funds are passively managed, expense ratios, which represent the fees you pay for the upkeep of your fund, should be nominal. Because all S&P 500 index funds perform very similarly, the amount you’re paying in fees becomes incredibly important when picking a fund.
• Minimum investment. Index funds have different investment minimums for taxable investment accounts and IRAs. Make sure your favorites align with the initial amount you have to invest and that you’ll be able to purchase more shares in intervals that work with your budget.
• Dividend yield. Dividends are one of the perks of investing in large-cap companies. Be sure to compare the dividend yield between index funds as dividends can boost returns, even in down markets.
• Inception date. If you’re an investor that prefers to see a solid track record for a fund prior to investment, pay attention to the fund’s inception date. Funds with longer histories can help you see how an index fund capitalized on bull markets and mitigated losses in bear markets.

Keep in mind that you only need one S&P 500 index fund in your portfolio. The best funds post broadly similar returns that are within a few percentage points of each other, and there’s little to gain by splitting assets between two funds. If you’re truly torn between two, you could consider using one fund in your 401(k) and the other in an IRA or your taxable investment account.

Read More: How To Buy An S&P 500 Index Fund

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What’s the Difference Between Index Funds and ETFs?

For most people, S&P 500 index funds and ETFs are functionally the same, and you’ll want to choose whichever fund, whether index or ETF, has the lowest cost and financial minimums that make sense for your investment goals.

Read more: ETF vs. Index Fund

That said, here are a handful of differences to keep in mind:

• ETFs are generally more liquid, trading throughout the day like stocks on the exchange; you can only buy or sell index funds at one point in the day, after other trading has ended. If you’re a long-term, buy-and-hold investor, this distinction is likely not relevant.
• Management fees on ETFs can be lower than on index funds tracking the same index, but don’t assume index funds are necessarily the pricier option.
• ETF buy-ins are often much lower than minimum investments required by mutual funds.
• However, fewer brokerages allow you to purchase fractional shares of ETFs, which may make it more difficult for you to buy additional shares.
• You’re much more likely to find only index funds in an employer-sponsored retirement plan, like a 401(k).
• ETFs have a slightly better setup for managing taxes, but this is less important to consider for index-based funds that aren’t engaging in frequent trading and for funds that you’re holding in tax-advantaged retirement accounts.

Regardless of whether you pick an S&P 500 index fund or ETF, know that these funds remain a solid tool for you to access large cap stocks for your portfolio without having to vet individual stocks. With traditionally low management fees and a wide array of investment minimums, you’ll have plenty of options that align with your assets and investment strategy.

The author(s) held no positions in the securities discussed in the post at the original time of publication.

Next Up in Retirement

Information provided on Forbes Advisor is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circumstances. We do not offer financial advice, advisory or brokerage services, nor do we recommend or advise individuals or to buy or sell particular stocks or securities. Performance information may have changed since the time of publication. Past performance is not indicative of future results.

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E. Napoletano is a former registered financial advisor and award-winning author and journalist.

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