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S&P 500 ETFs: Explore Your Options Before Investing

March 12, 2019
Investing, Investing Data, Investing Strategy
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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.

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:

 
SPDR
S&P 500 ETF
iShares Core
S&P 500 ETF
Vanguard
S&P 500 ETF
Company
State Street Global Advisors

BlackRock
Vanguard
Ticker symbol
SPY
IVV
VOO
Inception
January 1993
May 2000
September 2010
Total assets*
$255.5 billion
$158.3 billion
$101.4 billion
Expense ratio
0.0945%
0.04%
0.04% currently; 0.03% effective in mid-2019
52-week price range*
$233.76-$293.94

$235.99-$295.63
$215.85-$269.78

*All data current as of March 8, 2019.

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. For example, Vanguard offers all three S&P 500 ETFs commission-free, while VOO is the only commission-free offering at E-Trade, IVV is the only one at Fidelity and none currently is offered commission-free at Schwab or TD Ameritrade. Your ability to trade commission-free may be a deciding factor when choosing an S&P 500 ETF, especially because trading costs can add up with a strategy we recommend — dollar-cost averaging — in which you regularly add money to your investments over time.
  • 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.

» Read more: How to narrow your options when shopping for an ETF

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.

What’s next?

No matter which S&P 500 ETF you ultimately select, this fund should serve as a foundation in your portfolio. Not sure what to invest in next? Our guide on how to build a good investment portfolio offers some tips.

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