For nearly a century, the S&P 500 has delivered average annual returns of about 10%, making it one of the most reliable wealth-building tools available to investors. Today, S&P 500 ETFs provide an easy way to invest in this benchmark index, offering instant diversification across 500 of America’s largest companies.
With multiple S&P 500 ETF options available, choosing the right fund can significantly impact your long-term returns. While the differences might seem small, factors like expense ratios, trading volume, and fund structure can add up to thousands of dollars over time. This comprehensive guide will help you identify the best S&P 500 ETF for your investment portfolio.
The Top 3 S&P 500 ETFs
Three funds dominate the S&P 500 ETF space, collectively managing over $1.3 trillion in assets. Here’s how they compare:
| ETF | Ticker | Expense Ratio | 5-Year Return | Assets Under Management | Launch Year |
|---|---|---|---|---|---|
| Vanguard S&P 500 ETF | VOO | 0.03% | 14.03% | $1.3T+ | 2010 |
| iShares Core S&P 500 ETF | IVV | 0.03% | 14.03% | $645B+ | 2000 |
| SPDR S&P 500 ETF Trust | SPY | 0.0945% | 14.03% | $667B+ | 1993 |
These three funds track the same index and hold identical stocks. However, subtle differences in costs and structure make VOO and IVV the superior choices for most investors. SPY remains the most traded ETF with the highest trading volume, but its higher expense ratio makes it less attractive for long-term investors focused on building wealth.
The historical performance data shows remarkable consistency across all three funds, with each delivering approximately 14.03% annualized returns over the past five years. This performance reflects the S&P 500’s strong recovery and growth following market stress periods, demonstrating why these ETFs serve as core holdings in millions of portfolios worldwide.
Vanguard S&P 500 ETF (VOO)
VOO stands out as one of the best choices for long-term investors seeking exposure to the S&P 500. With an expense ratio of just 0.03%, this fund exemplifies Vanguard’s commitment to low-cost investing, allowing investors to keep more of their returns.
The fund’s minimal tracking error ensures it closely follows the S&P 500 index performance. This precise tracking stems from Vanguard’s full replication strategy, where the fund holds every stock in the S&P 500 in the exact proportion as the index. When companies are added or removed from the index, VOO rebalances accordingly.
For investors focused on long-term wealth building, VOO’s rock-bottom expense ratio can save thousands of dollars over time compared to higher-cost alternatives. The fund’s net asset value closely tracks the S&P 500, ensuring investors capture the full potential of America’s largest companies.
iShares Core S&P 500 ETF (IVV)
IVV matches VOO’s impressive 0.03% expense ratio while delivering identical 14.03% five-year returns. As part of BlackRock’s iShares family, IVV benefits from the world’s largest asset manager’s expertise and infrastructure.
The fund maintains strong liquidity with tight bid-ask spreads, making it easy for investors to buy and sell shares at fair market prices. This liquidity stems from IVV’s substantial assets under management and the fund’s integration with BlackRock’s broader ETF ecosystem.
Like VOO, IVV uses full replication to track the S&P 500, holding all 500 stocks in their index weights. The fund’s net asset reflects the underlying value of these holdings, providing transparent pricing throughout trading hours.
SPDR S&P 500 ETF Trust (SPY)
SPY holds the distinction of being the first S&P 500 ETF. The fund launched in 1993 and paved the way for the entire ETF industry. With over $667 billion in assets, SPY remains the largest and most actively traded ETF in the world.
The fund’s higher expense ratio of 0.0945% represents nearly three times the cost of VOO and IVV. For active traders who value maximum liquidity and the tightest bid-ask spreads, this premium might be worthwhile. SPY’s massive trading volume means investors can execute large trades with minimal market impact.
However, for long-term investors focused on buy-and-hold strategies, SPY’s higher fees represent a significant drag on returns over time. The fund’s structure as a unit investment trust prevents it from lending securities, potentially limiting tax efficiency compared to newer ETF structures.
Key Factors When Choosing an ETF
Several critical factors should guide your ETF selection, with expense ratios being the most important for long-term investors. Since all major S&P 500 ETFs hold the same securities in identical weights, cost becomes the primary differentiator.
Trading volume and liquidity matter most for active traders who frequently buy and sell ETF shares. For investors using dollar-cost averaging or holding positions for years, these factors become less relevant than ongoing expenses.
Commission-free availability at your brokerage can save money on each transaction. Most major brokers now offer commission-free ETF trading, but verifying this before investing helps avoid unexpected costs.
Expense Ratio Comparison Impact
The difference between a 0.03% and 0.0945% expense ratio might seem trivial, but these costs compound significantly over time. On a $10,000 investment held for 10 years:
- VOO/IVV (0.03%): Total fees of approximately $35
- SPY (0.0945%): Total fees of approximately $110
This $75 difference grows larger with bigger investments and longer time periods. On a $100,000 portfolio, the difference reaches $750 over a decade, money that could otherwise compound in your investment account.
Annual dollar costs break down as follows:
- $10,000 in VOO/IVV: $3 per year
- $10,000 in SPY: $9.45 per year
- $100,000 in VOO/IVV: $30 per year
- $100,000 in SPY: $94.50 per year
These seemingly small differences represent real money that stays in your pocket rather than going to fund management companies.
Growth vs Standard S&P 500 ETFs
While standard S&P 500 ETFs provide broad market exposure, growth-focused alternatives like the Vanguard S&P 500 Growth ETF (VOOG) offer a different risk-return profile. VOOG concentrates on companies within the S&P 500 that exhibit strong growth characteristics.
Over the past decade, VOOG has delivered approximately 16% average annual returns, outpacing standard S&P 500 ETFs by roughly 2 percentage points annually. This outperformance comes from the fund’s focus on companies in technology and other high-growth sectors.
However, this higher return potential comes with increased volatility. Growth stocks tend to experience larger price swings during market stress periods, making VOOG more suitable for investors with higher risk tolerance and longer time horizons.
Growth ETFs typically outperform during bull markets when investors favor companies with strong earnings growth. Conversely, they may underperform during market downturns or periods when value investing comes back into favor.
For most investors building a diversified portfolio, a standard S&P 500 ETF provides sufficient growth exposure while maintaining broader diversification across value and growth stocks.
Why You Only Need One S&P 500 ETF
Owning multiple S&P 500 ETFs provides no diversification benefit since all funds hold identical securities in the same weights. Whether you own VOO, IVV, or SPY, you’re getting exposure to the same 500 companies with the same sector allocations.
The fund’s investments remain consistent across providers since they all track the S&P 500 index. Apple, Microsoft, Amazon, and other large-cap technology companies represent the largest holdings in each fund, with weightings determined by market capitalization.
Rather than splitting money between multiple S&P 500 ETFs, investors achieve better diversification by adding different asset classes or geographic exposure. International ETFs, bond funds, or real estate investment trusts provide true diversification benefits that multiple S&P 500 funds cannot offer.
The simplicity of owning a single S&P 500 ETF also reduces complexity in portfolio management and tax reporting. With identical holdings across funds, there’s no strategic advantage to owning multiple options from this particular sector.
How to Buy ETFs
Opening a brokerage account represents the first step in purchasing ETFs. Major brokers like Fidelity, Schwab, and E*TRADE offer commission-free ETF trading, eliminating transaction costs that once made frequent investing expensive.
Commission-free trading allows investors to implement dollar-cost averaging strategies without worrying about fees eating into small, regular investments. This makes ETFs accessible to investors starting with limited capital.
Fractional share investing enables investors to buy partial ETF shares with any dollar amount. Instead of needing hundreds of dollars to buy a full share, investors can start with $10, $50, or any amount their broker allows.
Dollar-cost averaging involves investing a fixed amount regularly regardless of market conditions. This strategy helps reduce the impact of volatility by spreading purchases across different market prices over time.
Tax considerations differ between taxable and retirement accounts. In retirement accounts like 401(k)s or IRAs, investors don’t pay taxes on dividends or capital gains until withdrawal. In taxable accounts, these distributions may trigger annual tax obligations.
Frequently Asked Questions
What is an S&P 500 ETF?
An S&P 500 ETF is a fund that tracks the performance of the S&P 500 index, holding shares of the 500 largest publicly traded U.S. companies.
What are the top S&P 500 ETFs?
The top options are Vanguard S&P 500 ETF (VOO), iShares Core S&P 500 ETF (IVV), and SPDR S&P 500 ETF Trust (SPY), all of which hold identical stocks but differ in fees and trading volume.
Why do expense ratios matter so much?
Expense ratios directly reduce investment returns over time; choosing a lower-expense ETF like VOO or IVV means more money stays invested and compounds for the future.
Is there any benefit to owning more than one S&P 500 ETF?
No—since all major S&P 500 ETFs have the same holdings in identical proportions, owning more than one does not increase diversification.
Which S&P 500 ETF is best for long-term investors?
VOO and IVV are generally best for long-term wealth building due to their lowest expense ratios.
Can I buy fractional shares of S&P 500 ETFs?
Yes—most brokers allow fractional share investing, letting investors start with any dollar amount.
Do I pay commissions when buying S&P 500 ETFs?
Most major U.S. brokers now offer commission-free ETF trading, eliminating transaction costs for buyers.
