Warren Buffett is one of the most successful investors in history, and his advice to the rest of us is simple: Invest in a low-cost S&P 500 index fund.
Buffett’s reasoning? Over the long term, it’s incredibly difficult to assemble a portfolio that outperforms the S&P 500, which has delivered average annual returns of about 10% over a nearly 90-year period. What’s more, buying an S&P 500 ETF (exchange-traded fund) is an easy way for investors to buy a big slice of the market for a relatively small price. (New to this? Learn more about ETFs.)
Investors clearly see the appeal: The three ETFs that track the performance of the S&P 500 are among the four largest funds in the world.
But how do you choose an S&P 500 ETF? While eeny, meeny, miny, moe may be one approach, there are some differences you should know before making a selection.
» Learn more: What companies are in the S&P 500?
SPY, VOO and IVV: The 3 S&P 500 ETFs
If you search for S&P 500 ETFs, you may come across dozens of funds. Just because S&P 500 is in a fund’s name doesn’t necessarily mean it tracks the index as a whole. Rather, many of these ETFs track sub-components, say value or growth stocks, within the broader index.
But you won’t have to wade through a ton of options to decide on an ETF that tracks the performance of the S&P 500 index as a whole. There are just three, with the following trading tickers: SPY, IVV and VOO. The largest, SPY, happens to be the oldest, the youngest, VOO, soon will carry the cheapest management fees and the one in the middle, IVV, has the highest trading price.
This chart summarizes some key differences among these ETFs:
S&P 500 ETF
|iShares Core |
S&P 500 ETF
S&P 500 ETF
|Company||State Street Global Advisors||BlackRock||Vanguard|
|Inception||January 1993||May 2000||September 2010|
|Total assets*||$260.9 billion||$181.9 billion||$132.6 billion|
|Expense ratio||0.0945%||0.04%||0.04% currently; 0.03% effective in mid-2019|
|52-week price range*||$218.26 – $339.08||$220.28 – $340.63||$200.55 – $311.59|
*All data current as of May 20, 2020.
Which S&P 500 ETF is best?
The three S&P 500 ETFs are quite similar in two important aspects: You won’t have trouble finding these ETFs at most online brokers, and they’re very liquid, meaning it’s easy to buy and sell them on any given day.
We’re not here to pick a winner — the right fund for you is a personal decision — but there are some nuances you may want to consider:
- Expense ratios. The VOO ETF soon will boast the lowest management fees, about one-third of the SPY ETF. While the difference between a 0.03%, 0.04% and 0.0945% expense ratios may seem trivial, such fees can really add up. For every $10,000 invested, these respective fees equal $3, $4 and $9.45 annually. Then consider the difference at higher balances, such as $100,000.
- Trading costs. 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 thanks to the October price war.
- Price. There’s a slight difference in the price at which each fund currently trades. This shouldn’t necessarily be a deciding factor, but it may affect how many shares you can buy at any given time. At their recent lows, for example, you could’ve bought 23 shares of the VOO ETF versus 21 shares of the IVV ETF.
- Yield and return. There are some slight differences across these funds even though they all track the same index. These differences generally relate to return and yield. According to figures from Morningstar, IVV ETF currently has the highest 12-month yield (income generated from interest and dividends). Meanwhile, VOO ETF currently has the highest five-year price return (the financial gain on the investment), though just barely. While these statistics are interesting to note, you shouldn’t base any investing decision on past performance alone.
» Related: 25 best performing high-dividend ETFs
If you want to see how brokerages compare for matters related to ETFs, consult NerdWallet’s analysis of the best brokers for ETF investors:
» Want more options? See the full list of our best brokers for ETF investors.
You only need one
For some people, digging into the details is half the fun of investing. For others, it’s all minutia. Rest assured, you can’t go wrong with any of these funds. All three ETFs have lower-than-average expense ratios and offer an easy way to buy a slice of the U.S. stock market.
You could be tempted to buy all three ETFs, but just one will do the trick. You won’t get any additional diversification benefits (meaning the mix of various assets) because all three funds track the same 500 companies. What’s more, you might tie up money that could be better invested elsewhere.
Learn more about sector ETFs: