An exchange-traded Fund (ETF) is a financial instrument that tracks the movement of a basket of stocks, bonds, currencies, commodities, or other assets. It is called an “exchange-traded” fund because it can be traded on an exchange at a quoted price, just like you would buy and sell stocks. This is unlike mutual funds, which are not traded on an exchange, and which trade once per day at the close of the market.
This guide gives you a deep dive into a special kind of ETF, the S&P 500 ETF, and offers you a list of the best S&P 500 ETFs to trade.
Where Can I Trade S&P 500 ETFs?
Most brokerage firms let you trade S&P 500 ETFs, but not all brokers are the same.
Start by thinking about whether you’re a beginner or you have some investing experience, and whether you’re looking for a long-term investment or intraday trading. Depending on your needs, choose a broker based on the following factors: investment options, commissions/fees, minimum account balances, reliability, and access to educational content. Beginners will want to prioritize brokers that provide basic research and educational content; experts will want an advanced user interface with more tools and charting capabilities.
What is an S&P 500 ETF?
While some ETFs allow you to trade across industries, others focus on one industry or investing style. A market or index ETF, for example, replicates the performance of a stock index such as the FTSE 100 index.
S&P 500 ETFs are examples of index funds that allow you to buy into 500 different US stocks with a single purchase, rather than having to buy all 500 stocks individually. This can save you money and reduce your risk thanks to diversification.
So, what does “S&P 500” actually mean?
The Standard & Poor's 500 (S&P 500) index represents 500 of the largest US companies by market capitalization. Its largest components include mega-cap stocks such as Apple Inc., Microsoft Corp., Amazon.com Inc., and Facebook Inc. This index was developed in 1957 and has since been used as a benchmark to measure the performance of US stocks.
Today, the S&P index fund is one of the most popular funds as it is tracked by 19 ETFs. Since S&P 500 ETFs do not try to outperform the index, and merely replicate it, they are more suitable for risk-averse investors than risk-seekers.
Invest in S&P 500 ETFs in 3 Steps
Open a Trading Account
The first step is to open an account with an online broker. Identify the most reliable and reputable brokers, and take account of the costs, fee structure, minimum account balance, and trading limits of each broker. Then fill out an online application for your preferred broker.
Choose S&P 500 ETFs
Once you’ve familiarised yourself with the broker’s trading platform, seek out the S&P 500 ETFs you can trade on the platform. You may be able to filter the listed ETFs by various criteria, or at least search for the ones with “S&P” in the title. Some brokers will provide additional research and educational resources to help you.
Place your trade
Buying an ETF is no different from buying a regular stock. Select the ETF, check the price and specify the number of shares (or amount to invest), and click the “buy” button. You can see the ongoing performance of the ETF(s) in your portfolio, but you should avoid the urge to compulsively check the progress too often.
Best S&P 500 ETFs to Buy Now
Based on the past performance, expense ratios, and total assets under management, we have identified our top 10 S&P 500 ETFs to buy:
- Vanguard S&P 500 ETF (VOO)
- iShares Core S&P 500 ETF (IVV)
- SPDR S&P 500 ETF Trust (SPY)
- SPDR Portfolio (SPLG)
- Schwab U.S. Large Cap ETF (SCHX)
- iShares S&P 500 Growth ETF (IVW)
- ProShares Ultra S&P 500 (SSO)
- ProShares UltraPro S&P500 (UPRO)
- Direxion Daily S&P 500 Bull 3X Shares (SPXL)
- ProShares UltraPro Short S&P500 (SPXU)
1. Vanguard S&P 500 ETF (VOO)
As suggested by the name, the Vanguard S&P 500 ETF tracks the performance of the S&P 500 index. It was issued by Vanguard, one of the largest mutual fund companies in the world, and it began trading in 2010. Today, it is one of the largest ETFs on the markets with over $100 billion in assets under management. The Vanguard S&P 500 ETF exposes your portfolio to 500 of the largest companies in the United States, which offers you less risk and lots of diversity at an expense ratio of just 0.03%. The ETF is also liquid as it trades an average of 3,000,000 shares per day and it is available via nearly all brokerage firms.
2. iShares Core S&P 500 ETF (IVV)
BlackRock’s iShares Core S&P 500 ETF began trading in May 2000 and has since earned its position as one of the largest ETFs in the market. The fund, which closely tracks the performance of the S&P 500, boasts a small expense ratio of 0.03%. This S&P 500 ETF provides high liquidity and is an excellent choice for long-term investors.
3. SPDR S&P 500 ETF Trust (SPY)
Sponsored by State Street Global Advisors, the SPDR S&P 500 ETF is one of the pioneers in ETF investing, having been founded back in 1993. The fund is slightly more expensive, with an expense ratio of about 0.0945%, but the higher trading volume and liquidity make it an excellent investment choice for day-traders.
4. SPDR Portfolio (SPLG)
The SPDR Portfolio S&P 500 ETF provides investors with exposure to the large-cap market segment in the USA. The fund, which has $9.85 billion in assets under management at the time of writing, seeks to provide a total return that correspond to the overall return of the index. With a small expense ratio of about 0.03%, this ETF is ideal for large institutional investors who execute several trades within the day.
5. Schwab U.S. Large Cap ETF (SCHX)
The Schwab U.S. Large Cap ETF (SCHX) tracks 780 of the largest stocks (by market capitalization) in the United States. This provides investors with exposure to the S&P 500 and 280 additional large and well-known companies that are not in the index. Although the ETF has a slightly different benchmark, it tracks the performance of the S&P 500 ETF closely and has a low management fee of just 0.03%.
Expert Tip on Investing in S&P ETFs“ According to Warren Buffet, S&P 500 ETFs are some of the safest ways to build wealth. These passively managed investment vehicles are popular because it is almost impossible for active fund managers to beat the returns on the S&P index. However, while some funds are simple in their composition, some make amendments to the stock selections in a bid to beat the market return. You need to be very careful about the S&P 500 ETF that you choose as you don’t want to deviate too far from the benchmark. ”- VantagePointTrading Press Team VantagePointTrading Press Team
Why Trade S&P ETFs?
S&P 500 ETFs allow investors to participate in some of the most profitable US companies without having to buy individual stocks. Because of the broad nature of the S&P index, these ETFs also provide investors with an inexpensive way to diversify their portfolios. In doing so, long-term investors enjoy the market rate of return while minimizing the portfolio risk.
Most importantly, index funds are managed passively, so they have lower annual expenses and trading costs.
Frequently Asked Questions
ETFs and mutual funds have many similarities. However, while ETFs are traded throughout the day during market hours, mutual funds are only traded at the end of the trading day. So, the market price of an ETF fluctuates throughout the day.
The price of an S&P 500 ETF fluctuates throughout the day depending on the volatility of the individual stocks in the S&P index. Because of the broad nature of the S&P index, S&P 500 ETFs tend to be less volatile compared to (for example) commodity ETFs.
S&P 500 ETFs are ideal for investors who want to invest in US stocks without choosing individual stocks. They provide an excellent tool for portfolio diversification, which means you don’t risk losing all your money if one company performs badly. However, it also means that you can’t beat the market return.
S&P 500 ETFs are great for beginner investors. They provide exposure to a wide variety of well-established and financially stable businesses ranging from the technology sector to the utilities and consumer goods sectors. Such companies can withstand economic volatility, therefore providing stability to your portfolio. The diverse nature of the S&P 500 index also allows you to invest in a wide range of sectors until you learn to identify opportunities in specific sectors or countries.
The return of an ETF depends on the average return of the underlying asset. In this case, there are different S&P 500 ETFs, and the composition of the underlying assets varies from one to another. Some ETFs track the underlying index better than others, and the returns are also affected by the expense ratio.
Although S&P 500 ETFs are ideal for beginners, leveraged S&P 500 ETFs are not. They contain additional risk, which can be amplified during times of extreme volatility. Beginners should start with the unleveraged S&P 500 ETFs then progress to the leveraged ones as they gain more experience.