How to Choose an S&P 500 Index Fund That Fits Your Situation

The best S&P 500 index fund depends on what you pay and where you hold it

There is no single "best" S&P 500 index fund because the right choice depends on your account type, how much you invest, and what fees you pay. All S&P 500 index funds track the same 500 large companies, so they produce nearly identical returns. The differences that matter are the expense ratio (the annual fee), the minimum investment required, and whether the fund is available in your brokerage account or retirement plan.

The three largest providers—Vanguard, Fidelity, and Schwab—each offer S&P 500 index funds with expense ratios below 0.04 percent per year. At that cost, a $10,000 investment costs you roughly $4 annually. The gap between the cheapest and slightly more expensive options is so small that your choice of brokerage or employer plan often matters more than which fund you pick.

Key Takeaways

• Vanguard's VOO, Fidelity's FSKAX, and Schwab's SWPPX are the lowest-cost S&P 500 index funds available to most individual investors, each charging under 0.04 percent per year.
• If your employer offers a 401(k) or 403(b), the S&P 500 index fund inside that plan is usually your best choice because contributions reduce your taxable income.
• Expense ratios below 0.10 percent are competitive; anything above 0.20 percent is worth avoiding because you are paying significantly more for the same holdings.
• The fund you choose matters far less than starting early and investing consistently, since the difference between the cheapest and second-cheapest fund is typically less than $100 over ten years on a $10,000 investment.

Where you hold the fund matters more than which fund you pick

If your employer offers a 401(k), 403(b), or similar retirement plan, the S&P 500 index fund inside that plan is usually your best choice—not because it is the cheapest (though it often is), but because contributions are deducted before taxes. A $500 monthly contribution to a 401(k) reduces your taxable income by $6,000 per year, which can save you thousands in federal and state taxes over time. That tax advantage often outweighs paying a slightly higher expense ratio.

If you do not have access to an employer plan, open an individual brokerage account or an IRA at Vanguard, Fidelity, or Schwab. All three allow you to buy S&P 500 index funds with no minimum investment and no account fees. If you already have an account at one of these brokerages, use the S&P 500 fund available there rather than opening a new account elsewhere.

If you have a Roth IRA or traditional IRA, the same logic applies: use whichever S&P 500 index fund your current IRA provider offers. Switching providers to save 0.01 percent on fees costs time and creates paperwork; the tax benefits of the IRA itself are what drive your returns.

The three funds most investors can access

Vanguard's VOO (Vanguard S&P 500 ETF) charges 0.03 percent per year and holds all 500 companies in the index. It trades like a stock on any brokerage platform. Vanguard also offers VFIAX (Vanguard Institutional Index Fund), which is identical but available only inside Vanguard IRAs and brokerage accounts. Both have no minimum investment.

Fidelity's FSKAX (Fidelity S&P 500 Index Fund) charges 0.015 percent per year—half the cost of VOO—and is available only to Fidelity account holders. It does not trade on an exchange; you buy it directly through Fidelity. There is no minimum investment. Fidelity also offers FUSEX, which is similar but available only inside certain employer plans.

Schwab's SWPPX (Schwab S&P 500 Index Fund) charges 0.03 percent per year and is available only to Schwab account holders. Like FSKAX, it does not trade on an exchange. There is no minimum investment. Schwab also offers SNXFX for employer plans.

If you use a different brokerage—Fidelity, E*TRADE, Interactive Brokers, or another platform—you can usually buy VOO or a similar low-cost S&P 500 ETF. Check your brokerage's fund list or search for "S&P 500 index fund" to see what is available.

How to read an expense ratio and spot overpriced funds

An expense ratio is the percentage of your investment that goes to the fund company each year. A 0.03 percent ratio means you pay $3 annually on a $10,000 investment. A 1.0 percent ratio means you pay $100 on the same $10,000. Over 30 years, that difference compounds: on a $10,000 initial investment growing at 7 percent per year, the 0.03 percent fund leaves you with roughly $76,000, while the 1.0 percent fund leaves you with roughly $68,000. The cheaper fund delivered $8,000 more in the same time.

S&P 500 index funds with expense ratios above 0.20 percent are overpriced. Many mutual funds and some ETFs charge 0.50 percent or higher. If your employer plan offers an S&P 500 fund with a ratio above 0.20 percent, ask your plan administrator whether a cheaper option exists. If it does not, the S&P 500 fund is still worth using—the tax benefits of the plan outweigh the higher fee—but know that you are paying more than necessary.

Avoid S&P 500 funds that charge a sales load (an upfront fee to buy the fund) or a redemption fee (a charge to sell). These are relics of older fund structures and are not necessary.

S&P 500 index funds in employer retirement plans

Most large employers offer at least one S&P 500 index fund inside their 401(k) or 403(b). Common names include Vanguard S&P 500 Index Fund, Fidelity S&P 500 Index Fund, T. Rowe Price Equity Index Fund, and Schwab S&P 500 Index Fund. Check your plan's fund list (usually available on your employer's benefits website or through your plan administrator) and look for the S&P 500 option with the lowest expense ratio.

If your plan offers multiple S&P 500 funds, the differences are usually small. A 0.04 percent fund and a 0.08 percent fund will deliver nearly identical results over time. If your plan offers only one S&P 500 fund and its expense ratio is above 0.50 percent, that is unusually high, but the tax deduction for your contribution still makes it worth using.

If your employer plan does not offer an S&P 500 index fund, look for a total stock market index fund (which includes the S&P 500 plus smaller companies) or a target-date fund (which automatically adjusts its mix of stocks and bonds as you approach retirement). Both are reasonable alternatives.

ETFs versus mutual funds: which structure to choose

S&P 500 index funds come in two structures: ETFs (exchange-traded funds) and mutual funds. The difference is how you buy them. ETFs trade on an exchange like stocks; you place an order and buy one share at a time. Mutual funds are bought directly from the fund company; you specify a dollar amount and receive fractional shares.

For most investors, the structure does not matter. VOO is an ETF; FSKAX is a mutual fund. Both track the S&P 500, both charge low fees, and both will deliver the same long-term results. ETFs are slightly more tax-efficient in taxable accounts, but the difference is small enough that it should not drive your choice. If your brokerage makes it easy to buy mutual funds, use a mutual fund. If you prefer the simplicity of trading like a stock, use an ETF.

One practical note: some brokerages charge a commission to buy certain mutual funds. Check whether your brokerage charges a fee to buy FSKAX, SWPPX, or other S&P 500 mutual funds. If it does, buy an ETF instead (usually commission-free) or switch to a brokerage that does not charge mutual fund fees.

What to avoid when choosing an S&P 500 fund

Avoid actively managed S&P 500 funds. These are funds where a manager tries to beat the index by picking which of the 500 companies to overweight or underweight. They charge higher fees (often 0.50 percent or more) and rarely outperform the index after fees. If you see an S&P 500 fund with an expense ratio above 0.20 percent, it is almost certainly actively managed. Stick with index funds.

Avoid leveraged or inverse S&P 500 funds. These are designed for short-term trading, not long-term investing. They use derivatives to amplify gains or bet against the market, and they decay in value over time if held for more than a few days. They are not appropriate for a buy-and-hold portfolio.

Avoid funds with high minimum investments. Some S&P 500 funds require $1,000, $2,500, or more to open an account. Vanguard, Fidelity, and Schwab all allow you to start with any amount, so there is no reason to accept a higher minimum elsewhere.

Frequently Asked Questions

Is VOO or FSKAX actually better, or is the difference too small to matter?

The difference is too small to matter. FSKAX charges 0.015 percent and VOO charges 0.03 percent. On a $10,000 investment, that is $1.50 per year versus $3 per year. Over 30 years, assuming 7 percent annual growth, FSKAX would leave you with roughly $76,150 and VOO with roughly $76,000. The difference is $150—less than the time it takes to open a new account. Use whichever is available in your current brokerage.

Can I buy an S&P 500 index fund inside a Roth IRA?

Yes. Open a Roth IRA at Vanguard, Fidelity, Schwab, or another brokerage, and buy an S&P 500 index fund inside it. Contributions to a Roth IRA are made with after-tax money, but the growth is tax-free forever. An S&P 500 index fund is one of the most common holdings in Roth IRAs because it offers long-term growth with minimal fees.

What if my employer plan's S&P 500 fund has a 0.50 percent expense ratio?

Use it anyway. The tax deduction for your contribution (which reduces your taxable income) is worth far more than the extra 0.47 percent in annual fees. If you have already maxed out your employer plan contribution, then open an IRA or taxable brokerage account and buy a cheaper S&P 500 fund there.

Should I buy an S&P 500 fund or a total stock market fund?

Either works. An S&P 500 fund holds the 500 largest U.S. companies. A total stock market fund holds those 500 plus thousands of smaller companies. The S&P 500 fund is simpler and slightly cheaper; the total stock market fund offers more diversification. For most investors, the difference in long-term returns is negligible. Pick whichever your employer plan or brokerage makes easiest to buy.

Do I need to rebalance between different S&P 500 funds?

No. If you own multiple S&P 500 index funds, they all hold the same companies in the same proportions. Rebalancing between them serves no purpose. If you own an S&P 500 fund and other types of investments (like bonds or international stocks), you may want to rebalance those categories, but not within S&P 500 funds.