Best S&P 500 Index Funds To Invest In 2021

best s&p 500 index funds graph

Everyone gushes about index mutual funds for good reason. They’re an easy, hands-off, diversified, low-cost way to invest in the stock market. Index funds are investments made up of stocks that mirror the companies and performance of a market index, such as the S&P 500. The best index fund will have low expenses and a diversified portfolio that can endure the test of time.

Index funds are passively managed and generally have lower fees than actively managed funds. They often generate higher investment returns and are well-diversified investments. Although not all index funds are diversified, and some are not ideal for long-term investing. Because there is a wide variety of index funds to choose from, it’s essential for investors to understand which index funds are best for their needs.

What Are Index Funds?

An index fund is designed to match the performance of a stock index. An S&P 500 index fund invests in its 500 large-cap companies in the U.S. It doesn’t try to outperform the index but instead, it uses the index as its benchmark and aims to replicate its performance.

While S&P 500 funds are by far the most popular type of index fund, they are based on practically any financial market, investing strategy, or stock market sector. Index funds are popular with investors for multiple reasons. They offer easy portfolio diversification, with some funds having portfolio exposure to hundreds or even thousands of stocks and bonds.

You don’t risk losing all your money if one company performs poorly or collapses as you would with individual investments. But you also don’t get exposure to the potentially skyrocketing returns that can result from picking a huge winner.

Best S&P 500 Index funds- cash on table with index funds tag

6 Best S&P 500 Index Funds

1. Fidelity 500 Index Fund (FXAIX)

  • Expense Ratio: 0.015%
  • Minimum Investment: None

Founded in 1988 (formerly known as Institutional Premium Class fund), Fidelity removed this fund’s investment minimum requirement last year. Now, investors with any budget size can get into the low-cost index fund action.

2. Vanguard 500 Index Fund – Admiral shares (VFIAX)

  • Expense Ratio: 0.04%
  • Minimum Investment: $3,000

This is the one that started it all. One of the top S&P 500 index funds, this fund was founded in 1976 and is also known as the Vanguard S&P 500 Index Fund. Similar to other S&P 500 funds on this list, this fund gives exposure to 500 of the largest U.S. companies. Which make up around 75% of the U.S. stock market’s total value.

3. Schwab S&P 500 Index Fund (SWPPX)

  • Expense Ratio: 0.02%
  • Minimum Investment: None

As research firm Morningstar notes, this is one of the cheapest and most accessible S&P 500-tracking funds available. Launched in 1997, this Schwab fund charges a tiny 0.02% expense ratio and requires no minimum investment. Making it attractive for investors concerned about costs. One of the more low cost S&P 500 Index Fund options.

4. Fidelity Zero Large Cap Index (FNILX)

  • Expense Ratio: 0.00%
  • Minimum Investment: None

Fidelity Zero is one of a select few, fee-free mutual funds that Fidelity launched in 2018. The fund has no fees, commissions, or minimums, which makes it an interesting choice for long-term investing. FNILX holds the 500 largest companies in the U.S., so it is similar to the S&P 500. But has less structure and more efficient market theory.

FNILX is very likely to be a great alternative for former 401(k) investors that rolled over to an IRA at Fidelity and who are looking to exchange their old equity funds into lower fee alternatives.

Investment graph

5. T. Rowe Price Equity Index 500 Fund (PREIX)

  • Expense Ratio: 0.2%
  • Minimum Investment: $2,500

Founded in 1990, the fund’s expense ratio is competitive with other providers, but the required $2,500 minimum may be steep for beginning investors. The fund’s competitive expense ratio gives it a durable edge over its category peers. Its oldest share class earns a Morningstar Analyst Rating of Silver, while its I and Z share classes receive Gold ratings all thanks to their lower fees.

6.  iShares Core S&P 500 ETF (IVV)

  • Expense ratio: 0.04%
  • Minimum investment: None

Founded in 2000, iShares S&P 500 ETF has turned in an average annual return of 5.80% since inception, as compared with 5.87% for the S&P 500 over the same term. One of the best S&P 500 ETF investment opportunities.

Consider These Costs When Deciding On The Best S&P 500 Index Funds

  • Account minimum: This is different than the investment minimum. Although a brokerage’s account minimum may be $0 (common for customers who open a traditional or Roth IRA), that doesn’t remove the investment minimum for a particular index fund.
  • Investment minimum: The minimum required to invest in a mutual fund can run as high as a few thousand dollars. Once you’ve crossed that threshold, most funds allow investors to add money in smaller increments.
  • Expense ratio: This amount is deducted from the shareholder’s returns as a percentage of the overall investment. Look for the expense ratio in the funds prospectus. The average annual expense ratio is 0.09% for stock index funds and 0.07% for bond index funds. For actively managed stock funds it’s 0.82% and actively managed bond funds 0.58%.

In Conclusion

Index funds have currently become one of the most popular ways for Americans to invest because of their ease of use. As well as, instant diversity and returns that typically beat actively managed accounts. What investments are you considering?

MisterShaka

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