Compare the best S&P 500 ETFs
Well you’re in luck, as there are now many ways you can do this. Mutual funds have been the traditional way that people invested money in the performance of various indices, but in recent times these have lost ground to the simpler and more efficient option of using Exchange-Traded Funds (ETFs).
S&P 500 ETFs offer investors a wide variety of options to buy into America’s 500 largest company stocks. With so many options out there, this page will help clear everything up so you can choose the right S&P 500 ETF for you.
Best S&P 500 ETFs
There are many different varieties of ETFs that track the United States’ benchmark S&P 500 index. We outline the best ones in the table below.
|1||SPDR S&P 500 ETF Trust (SPY)|
|2||iShares Core S&P 500 ETF (IVV)|
|3||Vanguard S&P 500 ETF (VOO)|
|4||Schwab U.S. Large-Cap ETF (SCHX)|
|5||Portfolio Plus S&P 500 ETF (PPLC)|
Brokers offering S&P 500 ETFs
You can trade S&P 500 ETFs with a number of different online brokers. Here are the best of those brokers.
What is an S&P 500 ETF?
An S&P 500 ETF is an exchange traded fund (ETF) that follows the performance of the S&P 500 index. The S&P 500 is one of the most-used indices when it comes to assessing the performance of the American economy, as it tracks the share price of 500 large companies listed on stock exchanges across the USA.
S&P 500 ETFs are the most commonly traded ETFs in the world, and there are a variety that you can choose from, including the SPDR S&P 500 ETF and the Vanguard S&P 500 ETF.
Is it a good investment?
This depends on what you’re looking for. S&P 500 ETFs can be useful to use when investing as they tend to be less volatile than individual stocks, and the size and influence of the S&P 500 index makes it a good place to invest your money.
ETFs are useful products because they are diversified to track the performance of the stocks that are tracked by an S&P index. S&P 500 ETFs are also cheaper to trade than mutual funds (another common way of investing in indices), which usually require investors to pay management fees to fund managers. Moreover, you can invest in S&P 500 in a variety of different ways, whether your investing goals are more short-term or long-term.
That said, the first half of 2020 has demonstrated that even broad indices such as the S&P 500 (and the ETFs that track the S&P 500) can still be volatile in their own right when global markets start to fall. We recommend getting to know more about S&P 500 ETFs before actually investing in the S&P 500, much the same as we recommend getting to know more about individual stocks, forex, or cryptocurrencies before jumping into those waters.
How do I trade S&P 500 index ETFs?
In order to trade S&P 500 ETFs, you’ll need to sign up with a broker that offers S&P 500 ETF trading. Here’s a quick guide that features three steps to consider when considering the purchase of an S&P 500 ETF:
- How to choose an ETF
- How to choose a broker
- Use our top tips to succeed
1. How to choose an ETF
There are numerous different ETFs you can invest in that are pegged to the S&P 500 index, including the SPDR S&P 500 ETF, the most traded ETF in the world. Here’s a summary of what to consider when investing in ETFs:
- Total value of assets. An ETF should have a minimum level of assets, with $10 million being a common minimum threshold. Without that minimum, investor interest tends to go down, resulting in limited liquidity and wide price spreads – both undesirable traits for an ETF.
- Charges and fees. ETFs generally charge low fees. According to Morningstar Investment Research, the average ETF carries an expense ratio of just 0.44%, meaning you pay $4.40 in annual fees for every $1,000 that you invest. By comparison, the average traditional index fund carries a higher expense ratio of 0.74%.
- Daily trading volume. The most popular S&P 500 ETF, SPDR, carries an average daily volume greater than 169 million. Though there’s no hard and fast rule about optimal average daily trading volume, you do want to see fairly robust volume, as that indicates a more reliable investment less prone to wild price swings. Many S&P 500 ETFs boast average daily volume figures greater than 20 million.
- Performance over time. This one is simple: Look for the ETFs that have the strongest track record, as history tends to repeat itself in financial markets.
- Liquidity. ETF liquidity refers to both the volume of units traded on an exchange, and the liquidity of individual securities within an ETF’s portfolio. Again, there’s no specific minimum recommended level of liquidity, but generally speaking, the more liquidity the better.
- Whether it pays dividends. Though the main goal of owning an S&P 500 ETF is to track the action of the index itself, many ETFs also pay dividends. They do so by collecting the dividends offered by the individual stocks within the portfolio that issue them. Dividend payout schedules can vary, and the S&P 500 ETF SPDR issues dividends on the third Friday of the final month of every fiscal quarter (March, June, September, December).
- Location and tax status. Where ETFs are domiciled can affect their tax status. All things being equal, you want to look for ETFs that won’t have your profits heavily impacted by relevant taxes.
- Leverage. Leverage refers to an investor’s ability to put down just a percentage of the total trade, with a broker putting down the rest. Certain S&P 500 ETFs offer leverage as a trading option. Keep in mind that leverage is designed to be more of a short-term trading tool. It’s also only recommended for more experienced trades, as it can produce either very large gains or very large losses in a short amount of time.
2. How to choose a broker
If you want to trade ETFs, then you’ll need to find a broker that can facilitate these trades. There are a wide variety of different online trading platforms from which you can choose, so we’ve compiled this list of what you want to look out for when selecting the right broker for you.
- What services they offer. The first step you need to check is that the broker you have selected offers ETF trading, and whether – if so – you’ll be able to use the platform to buy stocks and trade Standard & Poor 500 ETFs. Beyond this you might want to check other trading options the broker offers, such as how much leverage you can trade with.
- Whether the platform offers a demo account. If you’re new to ETF trading, then it’s wise to start off with a demo account. These are offered by many brokers and allow you to place trades without risking any of your capital. You won’t make any money with a demo account, but using one to learn the ropes can prevent losses later on.
- The fees charged. Trading ETFs often incurs fees, and these will vary from broker to broker. Sometimes there’ll be a flat rate for making trades, and sometimes brokers will charge commission. Check out the fees charged by a broker before signing up to their service.
- Financial limits. Brokers will often apply a variety of limits to users’ trading activities. This can include deposit/withdrawal minimums and maximums or daily ETF trading limits. Make sure you pick a provider that can cater to the level of trading you’re looking to be doing.
- Security features and regulation. When investing your money with a platform, you want to ensure that it is reputable, complies with relevant legislation, and has good online security features. You can find reliable brokers by looking through our reviews, or simply follow the links to brokers that are listed on this page.
3. Use our top tips before investing
Before investing in S&P 500 ETFs, follow these important tips:
- Do your research. Study the different types of available S&P 500 ETFs, then compare each one to your preferred goals, whether it’s paying the lowest possible fees, and whether it fits with your broader trading strategy.
- Set a budget. Protect your capital by setting a budget you can afford, and do not put yourself in position to lose more than you can afford to lose. This will help you make sure you’ll have enough capital left to make other trades, if your first one doesn’t work out.
- Select the right platform. Beyond researching the index and the ETF you want to buy, you’ll want to choose a trading platform that fits your needs. We have reviewed all the best platforms that offer ETF trading on our site to help you make the right choice.
- Grow your investments over time. It’s ok to start slow, especially if you’re a beginner investor. Consider venturing smaller amounts of money to start, then ramping up the size of your investments over time.
- Think long-term. While S&P 500 ETFs can be used for shorter-term trading, there’s plenty of potential for bigger long-term gains, if you buy during a bull market. If the market cooperates, buying and holding an S&P 500 ETF could pay off in the long run.
What should I do now?
If you’re ready, we suggest choosing a broker so you can begin hunting down your chosen ETFs. If you need more time, you’ll find lots more trading courses and timely news updates across our site.
Try some of our investment courses for beginners
Still not feeling ready? We get it. Our investment courses will help you learn the ropes when it comes to making money trading S&P 500 ETFs.