What is an S&P 500 index fund?

An S&P 500 index fund is a fund that tracks the Standard and Poor's 500 Index — a list of the 500 largest publicly traded US companies by market capitalization, including Apple, Microsoft, Amazon, NVIDIA, Alphabet (Google), and Meta. When you invest in an S&P 500 index fund, you own a tiny piece of all 500 companies proportionally. The fund automatically rebalances as companies enter or exit the index.

Which is better — VOO, SPY, or IVV?

All three track the S&P 500, but VOO and IVV are better than SPY for long-term investors due to lower expense ratios: VOO charges 0.03%, IVV charges 0.03%, while SPY charges 0.0945%. On $100,000 invested over 30 years, that 0.0645% difference costs approximately $20,000. SPY has higher trading volume and tighter bid-ask spreads, making it marginally better for day traders who need maximum liquidity. For buy-and-hold investors, VOO or IVV is the better choice.

How much does the S&P 500 return on average?

The S&P 500 has returned approximately 10.5% per year on average since its inception in 1957, including dividend reinvestment. After inflation (averaging ~3%), the real return is approximately 7–7.5% per year. Past performance does not guarantee future results, but no 20-year rolling period in S&P 500 history has delivered a negative return.

Can the S&P 500 lose money?

Yes. The S&P 500 experiences significant losses during recessions and market crises. Major drawdowns include: 2000–2002 dot-com crash (down 49%), 2008–2009 financial crisis (down 57%), March 2020 COVID crash (down 34%). However, the market has recovered from every drawdown and gone on to new highs. Investors who hold through downturns and continue contributing have historically been rewarded. The risk of loss is highest in short time horizons — investors who may need their money within 1–5 years should not hold all assets in an S&P 500 fund.

Best S&P 500 Index Funds 2026 — Lowest Cost Options Ranked

The best S&P 500 index funds in 2026 are VOO (Vanguard, 0.03%), IVV (iShares, 0.03%), and FXAIX (Fidelity, 0.015%) — all track the same 500 companies at near-identical performance. The only meaningful difference is expense ratio and where you can buy them. The S&P 500 has returned approximately 10.5% per year historically, making these funds the core holding for most long-term investors.

Best S&P 500 Index Funds 2026 — Comparison Table

Fund	Ticker	Type	Expense Ratio	Min. Investment	Best For
Vanguard S&P 500 ETF	VOO	ETF	0.03%	~$1 (fractional)	Vanguard/any broker investors
iShares Core S&P 500 ETF	IVV	ETF	0.03%	~$1 (fractional)	Any broker
Fidelity 500 Index Fund	FXAIX	Mutual fund	0.015%	$0	Fidelity account holders
Fidelity ZERO Large Cap	FNILX	Mutual fund	0.00%	$0	Fidelity — lowest possible cost
Schwab S&P 500 Index	SWPPX	Mutual fund	0.02%	$0	Schwab account holders
SPDR S&P 500 ETF Trust	SPY	ETF	0.0945%	~$1 (fractional)	Active traders needing liquidity
Invesco S&P 500 ETF	RSP	ETF	0.20%	~$1	Equal-weighted S&P 500 variant

Why the S&P 500?

The S&P 500 represents roughly 80% of total US stock market capitalization. It covers every major sector:

Sector	S&P 500 Weight (Approx. 2026)
Information Technology	~29%
Financials	~13%
Health Care	~12%
Consumer Discretionary	~10%
Communication Services	~9%
Industrials	~9%
Other sectors	~18%

When you buy an S&P 500 index fund, you own a proportional slice of the US economy’s largest companies.

VOO vs. SPY vs. IVV — Which to Buy?

All three track the S&P 500 identically. The differences:

VOO (Vanguard S&P 500 ETF)

Expense ratio: 0.03%
AUM: ~$550 billion
Best for: Long-term buy-and-hold investors using Vanguard or any major broker
Tax efficiency: High (ETF structure minimizes capital gains distributions)

IVV (iShares Core S&P 500 ETF)

Expense ratio: 0.03%
AUM: ~$500 billion
Best for: Investors using TD Ameritrade (now Schwab), Fidelity, or any broker; slightly better for non-Vanguard investors who want an ETF

SPY (SPDR S&P 500 ETF Trust)

Expense ratio: 0.0945% — 3x the cost of VOO/IVV
AUM: ~$570 billion — highest trading volume of any ETF in the world
Best for: Options traders and day traders who need maximum liquidity and tight bid-ask spreads
Note: SPY’s trust structure prevents it from reinvesting dividends during the quarter, causing slight tracking differences vs. VOO/IVV

FXAIX (Fidelity 500 Index Fund)

Expense ratio: 0.015% — lower than VOO
Available only through Fidelity
No minimum investment
Mutual fund (priced once daily at market close) — not an ETF

FNILX (Fidelity ZERO Large Cap Index)

Expense ratio: 0.00%
Tracks the Fidelity US Large Cap Index (not the official S&P 500, but nearly identical)
Available only through Fidelity
Ideal for cost-minimizing Fidelity investors

How Much Would You Have Made?

$10,000 invested in the S&P 500 over various time periods (lump sum, with dividends reinvested):

Time Horizon	Approx. Value (End of 2025)
5 years (2021–2025)	~$14,800
10 years (2016–2025)	~$31,500
20 years (2006–2025)	~$71,000
30 years (1996–2025)	~$174,000

These figures approximate historical returns and are not a guarantee of future performance.

Worked example with monthly contributions: $500/month invested in an S&P 500 index fund starting at age 25, assuming 10% average annual return, grows to approximately $3.24 million by age 65 — from $240,000 in total contributions over 40 years.

How to Buy an S&P 500 Index Fund — Step by Step

Open a brokerage account — Fidelity (for FXAIX/FNILX), Vanguard (for VOO), or Schwab (for SWPPX)
Choose tax-advantaged account first: Roth IRA (2026 limit: $7,000), then 401(k), then taxable
Fund the account via ACH transfer from your bank
Search for the ticker (VOO, IVV, FXAIX, etc.) and click Buy
Choose amount: Most brokers now offer fractional shares — you can invest any dollar amount
Set up automatic investing to contribute monthly without thinking about market timing

S&P 500 Index Fund Tax Considerations

In a Roth IRA or 401(k): All growth is tax-free (Roth) or tax-deferred (traditional 401k/IRA). Maximum benefit for long-term compounding.

In a taxable brokerage:

ETFs (VOO, IVV) are more tax-efficient than mutual funds due to in-kind redemption mechanism
Dividends: taxed as qualified dividends (0%, 15%, or 20% depending on income)
Capital gains: 0%, 15%, or 20% long-term rate if held 1+ years; ordinary income rate if held less than 1 year
FXAIX/FNILX (mutual funds) may occasionally distribute capital gains at year-end — less tax-efficient in taxable accounts vs. ETFs

Limitations of S&P 500 Funds

The S&P 500 only covers US large-cap stocks — it excludes:

US mid-cap and small-cap companies
International stocks (40%+ of world market cap)
Bonds
REITs, commodities, and alternatives

For true diversification, many advisors recommend adding a total international stock fund (VXUS: 0.07% ER) alongside an S&P 500 fund.

Written by WealthVieu

WealthVieu researches and writes data-driven personal finance guides using primary sources including the IRS, Bureau of Labor Statistics, Federal Reserve, and Census Bureau.

The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy