S&P 500 index funds: how to pick one and what they cost

Written by the Tactfolio research teamPublished 5 min read

An S&P 500 index fund owns the stocks in the S&P 500, in the same amounts, so its return closely matches the index. You can buy one as an ETF, which trades like a stock, or as a mutual fund, which trades once a day. The biggest ones charge very low fees, often 0.02% to 0.04% a year as of October 2026. Because they all hold the same stocks, fees and convenience matter more than past returns when you choose.

Key points#

  • An index fund copies an index instead of trying to beat it (Investor.gov).
  • S&P 500 funds come as ETFs (such as VOO, IVV and SPY) or mutual funds (such as FXAIX, SWPPX and VFIAX).
  • Their returns are nearly the same. Small differences come mostly from fees.
  • A fee of 0.03% a year costs $3 for every $10,000 you hold.
  • An S&P 500 fund still falls when the market falls. It lost about half its value from 2007 to 2009.

What is an S&P 500 index fund?#

An S&P 500 index fund holds about 500 large US company stocks, weighted the same way as the S&P 500 index. When the index rises 1%, the fund rises about 1%, minus a tiny slice for fees.

The fund does not try to pick winners. That is called passive investing. Passive funds trade less and usually cost less than funds run by stock pickers (Investor.gov).

Here are some of the largest S&P 500 funds. Fees are each fund’s yearly expense ratio, from the fund company’s own page, checked in October 2026. They can change, so check before you buy.

FundTickerTypeYearly fee
Fidelity 500 Index FundFXAIXMutual fund0.015%
Schwab S&P 500 Index FundSWPPXMutual fund0.02%
Vanguard 500 Index Fund Admiral SharesVFIAXMutual fund0.04%
Vanguard S&P 500 ETFVOOETF0.03%
iShares Core S&P 500 ETFIVVETF0.03%
SPDR S&P 500 ETF TrustSPYETF0.0945%

Sources: Fidelity, Schwab, Vanguard VFIAX, Vanguard VOO, iShares, State Street.

SPY costs a bit more, but it trades the most shares each day. Big traders like that, because they can buy and sell large amounts quickly. For most long-term savers, a lower fee matters more.

ETF or mutual fund: which S&P 500 fund type?#

Both types hold the same stocks. The difference is how you buy and sell them.

ETF (VOO, IVV, SPY)Mutual fund (FXAIX, SWPPX, VFIAX)
When it tradesAll day, at the market priceOnce a day, at the closing price
Where you can buy itAlmost any brokerOften easiest at the fund company’s own broker
Automatic investingDepends on the brokerUsually easy, in exact dollar amounts
Taxes in a regular accountUsually fewer taxable payoutsCan pay out taxable gains in some years

If you buy through your 401(k), you pick from your plan’s list. Many plans include an S&P 500 fund. Read IRA vs 401(k) to see how each account works.

How much do fees matter?#

Fees come out of the fund every year, so they add up over time. Here is an example with made-up round numbers. It assumes the fund earns 7% a year before fees, which is only an assumption, not a forecast.

Yearly fee$10,000 after 30 years
0.03%about $75,500
0.50%about $66,100
1.00%about $57,400

The fund with a 1% fee ends up about $18,000 behind, on the same stocks. That is why low-cost S&P 500 funds are so popular.

How to buy an S&P 500 index fund#

  1. Pick the account. Use your 401(k) at work, an IRA, or a regular brokerage account.
  2. Pick the fund. Choose a low-fee ETF or mutual fund from the list your broker offers.
  3. Decide how much. Many people invest a set amount every month. This is called dollar-cost averaging.
  4. Place the order. For an ETF, enter the ticker and the number of shares or dollars. For a mutual fund, enter a dollar amount.
  5. Leave it alone. Check once or twice a year. Reacting to every drop tends to hurt returns.

What are the risks?#

An S&P 500 fund is spread across about 500 companies, but they are all large US companies. It does not own small companies, foreign stocks or bonds.

It also falls with the market. The S&P 500 fell about 57% from October 2007 to March 2009. It fell about 34% in early 2020. These figures use index closing values from S&P Dow Jones Indices. An index fund would have dropped about as much. If you might need the money within a few years, a mix with bonds may suit you better.

Common mistakes#

  • Choosing a fund by its past return. All S&P 500 funds have nearly the same return, so compare fees instead.
  • Owning three S&P 500 funds and thinking that is spread out. They hold the same stocks.
  • Selling in a crash. That turns a paper loss into a real one.
  • Paying a high fee for an S&P 500 fund when cheaper ones exist.
  • Thinking an S&P 500 fund covers “the whole market”. It leaves out small companies and other countries.

Try it on Tactfolio#

Tactfolio backtests compare every strategy with SPY by default, so you can see how a rule stacks up against a plain S&P 500 fund. The 60/40 portfolio holds an S&P 500 fund with Treasuries, and the Faber 10-month moving average model holds it only while its trend is up. Open either one to see the rules and a hypothetical backtest with drawdowns. You can also put VOO or IVV in your own strategy in the strategy builder. To learn what the index itself is, read the S&P 500 index. Some holders sell covered calls on their S&P 500 funds for extra income.

Common questions#

What is the best S&P 500 index fund?#

There is no single best one. They hold the same stocks, so compare the yearly fee and check that your broker offers the fund. Then decide if you want an ETF or a mutual fund. As of October 2026, several charge between 0.015% and 0.04% a year.

Is VOO or SPY better?#

They track the same index, so their returns are very close. VOO had a lower yearly fee (0.03% vs 0.0945%) as of October 2026. SPY trades more shares each day, which matters mainly to large, active traders.

How much money do I need to start?#

Many brokers let you buy ETFs in fractions of a share, so you can start with a few dollars. Some mutual funds, such as FXAIX and SWPPX, have no minimum. Others, like VFIAX, ask for a set amount to start.

Do S&P 500 index funds pay dividends?#

Yes. The companies pay dividends, and the fund passes them on to you, usually every quarter. You can take them as cash or have them reinvested.

Can an S&P 500 index fund lose money?#

Yes. It rises and falls with the S&P 500. It has lost more than half its value before, and losses over a single year are common. Over long periods it has grown, but past results don’t promise future ones.

Sources

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