The best S&P 500 index fund depends on where you're investing and what you pay in fees, not on which fund is "best" in general
There is no single best S&P 500 index fund because the right choice depends on your specific situation. If you're investing through a 401(k) at work, you pick from whatever your employer's plan offers. If you're opening a brokerage account or IRA on your own, you'll choose based on the fund company you use and the fees you'll pay. The funds that track the S&P 500 are remarkably similar — they all hold the same 500 companies in roughly the same proportions — so the difference between a good choice and a poor one usually comes down to expense ratios (the annual fee you pay) and whether the fund is available where you want to invest.
The three largest fund companies — Vanguard, Fidelity, and Charles Schwab — each offer S&P 500 index funds with expense ratios below 0.04% per year. That means you pay less than $4 annually on a $10,000 investment. The differences between them are small enough that picking any of these three is a reasonable decision. What matters more is avoiding funds with expense ratios above 0.20%, which will cost you significantly more over decades of investing.
Key Takeaways
- The S&P 500 index funds from Vanguard, Fidelity, and Charles Schwab all charge less than 0.04% per year and track the same 500 companies, so performance differences between them are negligible.
- Your employer's 401(k) plan may offer only one S&P 500 index fund option, in which case that becomes your best choice if the expense ratio is reasonable.
- If you're opening an IRA or taxable brokerage account, choose based on which fund company you already use or plan to use, since switching between providers later involves paperwork and potential tax consequences.
- Expense ratio is the main cost that varies between S&P 500 index funds; avoid any fund charging more than 0.20% annually, as those fees compound significantly over time.
- All S&P 500 index funds hold the same companies, so differences in returns come from fees and minor tracking variations, not from superior stock-picking.
How S&P 500 index funds actually differ
Every S&P 500 index fund holds shares in the same 500 large U.S. companies in the same weightings. Apple, Microsoft, Nvidia, and the other largest companies make up a much bigger portion of the fund than smaller companies in the index. Because the holdings are identical, the returns of different S&P 500 index funds should be nearly identical — and they are, with one exception: fees.
The expense ratio is the percentage of your investment that the fund company charges annually to manage the fund. A 0.03% expense ratio on a $10,000 investment costs $3 per year. A 0.50% expense ratio on the same investment costs $50 per year. Over 30 years, that difference compounds. On a $10,000 initial investment growing at 7% annually, the 0.03% fund leaves you with roughly $76,000 while the 0.50% fund leaves you with roughly $71,000 — a difference of $5,000 from fees alone.
The second small difference is tracking error, which is how closely a fund follows the index. A fund might hold slightly different amounts of each stock or reinvest dividends on a different schedule than the index itself. This difference is usually less than 0.05% per year and is already reflected in the fund's published returns, so it's not an additional cost — it's just part of how closely the fund matches the index.
S&P 500 index funds available through major brokers
If you're opening an account with a brokerage firm, you'll typically have access to that firm's own index fund plus index funds from other companies. Here are the most common low-cost options:
| Fund Company | Fund Name | Expense Ratio | Where You Can Buy It |
|---|---|---|---|
| Vanguard | Vanguard 500 Index Fund (VFIAX for IRAs/taxable accounts; VFIIX for 401k) | 0.03% | Any brokerage; Vanguard accounts |
| Fidelity | Fidelity 500 Index Fund (FXAIX) | 0.015% | Any brokerage; Fidelity accounts |
| Charles Schwab | Schwab U.S. 500 ETF (SWPPX as mutual fund; SPLG as ETF) | 0.02% | Any brokerage; Schwab accounts |
| iShares (BlackRock) | iShares Core S&P 500 ETF (IVV) | 0.03% | Any brokerage |
| SPDR (State Street) | SPDR S&P 500 ETF Trust (SPY) | 0.09% | Any brokerage |
The difference between a 0.015% expense ratio and a 0.03% ratio is real but small — roughly $1.50 per year on a $10,000 investment. Over 30 years, that compounds to a few hundred dollars. The more important distinction is between these funds (all under 0.10%) and older or actively managed S&P 500 funds that charge 0.50% or higher.
Choosing between a mutual fund and an ETF
Most S&P 500 index funds come in two structures: mutual funds and exchange-traded funds (ETFs). For most home investors, the choice between them doesn't matter much. Mutual funds (like VFIAX or FXAIX) can be bought and sold once per day at the closing price, and you can set up automatic monthly investments. ETFs (like IVV or SPLG) trade throughout the day like stocks, which means you can see the price change minute by minute, but you may pay a small trading commission depending on your brokerage.
Many brokerages now offer commission-free ETF trading, which eliminates the cost difference. If you're investing a lump sum once, an ETF might be slightly cheaper. If you're investing small amounts regularly (like $500 per month), a mutual fund is usually easier because you can automate it without worrying about trading commissions or the exact price you'll pay.
The tax treatment is nearly identical for both structures in taxable accounts, so this choice is mostly about convenience rather than performance or cost.
What to do if your 401(k) offers limited choices
Many employer 401(k) plans offer only one or two S&P 500 index fund options, often from the plan's designated provider. You don't get to choose Vanguard or Fidelity if your plan uses Schwab or Fidelity exclusively. In this case, your best choice is whichever S&P 500 index fund your plan offers, as long as the expense ratio is below 0.20%.
If your plan offers an S&P 500 index fund with an expense ratio above 0.50%, and you have other investment options available (like a total U.S. stock market index fund or a target-date fund), those alternatives may be worth considering. But most employer plans have moved toward low-cost index funds in recent years, so this situation is becoming less common.
If you're unhappy with your 401(k) options, you can't change them — the plan administrator decides which funds to offer. However, once you leave that job, you can roll the 401(k) into an IRA with a provider of your choice, where you'll have access to any S&P 500 index fund you want.
Why you shouldn't switch between S&P 500 index funds
Once you've chosen an S&P 500 index fund and started investing, switching to a different one later usually costs more than it saves. If you're in a taxable brokerage account, selling one fund to buy another triggers a taxable event — you'll owe capital gains tax on any profit, even though you're staying in the same type of investment. If you're in an IRA, there's no tax consequence, but the paperwork and the time your money spends uninvested (even briefly) can create small inefficiencies.
The only reason to switch is if your current fund's expense ratio is significantly higher than available alternatives — say, 0.40% or more — and you're planning to hold the investment for many more years. The tax cost of switching in a taxable account usually outweighs the fee savings unless the difference is substantial.
The real decision: where to open your account
The choice of which S&P 500 index fund matters less than the choice of which brokerage to use, because most brokerages offer low-cost S&P 500 index funds. Vanguard, Fidelity, Charles Schwab, and E-Trade all have S&P 500 index funds under 0.04%. The differences between them are small enough that you should choose based on other factors: which brokerage has the best user interface for you, which one offers the best customer service, or which one you already have an account with.
If you're starting from scratch, Vanguard, Fidelity, and Schwab are all solid choices. Each has low fees, straightforward websites, and good customer support. Pick one and open an account. The difference between them is smaller than the difference between investing in an index fund and not investing at all.
Frequently Asked Questions
Can I own multiple S&P 500 index funds at the same time?
Yes, but there's no benefit to doing so. Owning two S&P 500 index funds means you're holding the same 500 companies twice, which adds complexity without improving returns. If you have money in both a 401(k) and an IRA, it's fine to own an S&P 500 index fund in each account — that's normal. But within a single account, pick one and stick with it.
Does the S&P 500 index fund performance vary between companies?
Performance is nearly identical because all S&P 500 index funds hold the same stocks. Over a full year, the difference in returns between Vanguard's and Fidelity's S&P 500 funds is usually less than 0.05%, which is just the difference in their expense ratios. You won't see one fund "outperform" another in any meaningful way.
What if I want to invest in the S&P 500 but also own individual stocks?
You can do both. Many investors own an S&P 500 index fund as their core holding and buy individual stocks with a smaller portion of their money. The index fund gives you broad diversification, while individual stocks let you act on specific ideas. Just make sure the index fund is large enough that it's still your primary investment.
Is there a difference between S&P 500 index funds and total stock market index funds?
Yes. An S&P 500 index fund holds only the 500 largest U.S. companies. A total stock market index fund holds those 500 plus thousands of smaller companies. Total market funds are slightly more diversified but also slightly more expensive. Both are reasonable core investments; the choice is a matter of preference rather than performance.
Should I wait for the S&P 500 to drop before buying an index fund?
No. Trying to time the market — waiting for prices to fall before investing — usually backfires because you can't predict when drops will happen. If you have money to invest, starting now and investing regularly over time historically produces better results than waiting for a "better" price that may never come.