September 4, 2022
Want to create long-term wealth with minimum risk? Follow the simple investment rule - Buy stocks that are less risky and have a high probability of stable returns.
For this, you don't need to choose stocks by doing a lot of research and calculations. All you have to do is buy an Index Fund - Yes, that simple.
In the article, I will explain -
What are S&P 500 ETFs or Index Funds?
The S&P 500 Index is a benchmark index of the US stock market comprising 500 top large-cap stocks. The Index covers more than 75% market cap of the entire American stock market & it has generated around 11% annual average return in the last 90 years. It's a simple and attractive investment option as it provides diversification & good returns with relatively low risk.
There was no option to invest in S&P directly before 1993 when the first American Exchange Traded Fund (ETF) launched.
ETF is a fund or basket of securities that can be tradable on an exchange similar to stocks. It gives you the freedom to invest in multiple stocks, sectors, or other asset classes at once.
For example, if you want to invest in the S&P 500 then you can buy popular ETFs (Vanguard S&P 500). All your money will be distributed to S&P 500 Companies and you will get the same returns as the index.
Why to Invest in Index Funds or ETFs?
1. Diversification & Lower Risk
The S&P 500 ETFs are relatively less risky compared to individual stocks. When you buy an Index ETF, all of your money distributed to 500 large-cap companies, which cover 11 different sectors and leading the US economy. So this kind of diversification reduces risk and balance your portfolio smoothly.
Check - S&P 500 Stocks by Weight
2. Attractive Returns
As per the data, the S&P 500 ETF (SPY) has given an annual average return of 10.37% in the last 26 years. It means that if you had invested $ 1000 in 1993, you would have got around $19K - 20K today.
Check - S&P 500 YTD Returns
3. Simple Process
You can buy S&P 500 ETF with one click through your investment broker. There is no minimum investment requirement in ETFs and you can buy and sell ETFs in trading hours like other stocks. Whereas in mutual funds, you have to invest a minimum amount between $500 - $ 5000 (estimated) and trades are available once at the closing price of the day.
4. Lower Cost
ETFs have a low expense ratio and the fee is less than 0.1% of your investment. If you invest $10000 in any of the top S&P 500 ETFs, then you only have to pay less than $10 .
6 Best S&P 500 ETFs 2021
Now the question is what are the best S&P 500 ETFs to invest? Here are the 3 main factors with the help of which you can find the best Index Fund or ETF for yourself -
- Low Expense Ratio
- Good Historical Performance
- High Assets Under Management
But if you don't have more time for research and calculations then you can go with these top five S&P 500 low cost index funds/ETFs
|Top ETF's||Symbol||Price||Expense Ratio||AUM||Daily Volume||1Y Return||3Y Return||5Y Return||10Y Return|
|1. Vanguard Total Stock Market Index Fund||(VTI)||$179.5||0.03%||$1.26T||8,427,024||44.42%||18.73%||17.90%||14.70%|
|2. Vanguard S&P 500 ETF||(VOO)||$328.3||0.03%||$753.41B||7,736,631||40.97%||18.56%||17.60%||14.80%|
|3. iShare Core S&P 500||(IVV)||$358.7||0.03%||$286.99B||7,337,538||40.96%||18.62%||17.62%||14.79%|
|4. SPDR S&P 500 ETF Trust||(SPY)||$357.2||0.09%||$374.03B||153,711,243||40.90%||18.51%||17.51%||14.71%|
|5. Schwab S&P 500 Index Fund||(SWPPX)||$55.5||0.02%||$61.4B||0||40.77%||18.65%||17.60%||14.77%|
|6. Fidelity ZERO Total Market Index Fund||(FZROX)||$12.6||0.00%||$10.51B||0||44.02%||N/A||N/A||N/A|
How to Buy S&P 500 ETF
- First, you need to open a brokerage account. (Use TD Ameritrade or Fidelity.)
- Now login to your trading portal and add money.
- Select your favorite ETF which is convenient for you.
- Finally click on the buy and units will be credited to your account soon.
Related Post -
The expense ratio is the fees charged for ETF services.
AUM is the total value of the fund managed by the ETF. It shows the liquidity & trust in the ETF.
Mutual funds have high charges & conditions for entry and exit. ETF has low fees and exchange tradable instrument just like stocks.
It depends on the market but in the long run, 10% - 12% average annual return can be expected from S&P 500 ETF's.
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