3 Best S&P 500 Index Funds

*Sources: Fidelity, Vanguard, Schwab, Morningstar. Data is as of May 2023.

S&P 500 index funds seek to replicate the Standard & Poor’s 500, a stock market index that tracks the performance of 500 of the largest companies in the U.S.

Investing in these passively-managed funds is considered a simple, low-cost way to diversify your investment portfolio by getting exposure to a wide variety of stocks across sectors. But finding the best option can be a bit of a challenge.

Below we review some of the best S&P 500 index funds to invest in this year.

Our Top Picks for the Best S&P 500 Index Funds

• Fidelity 500 Index Fund (FXAIX)
• Vanguard 500 Index Fund Admiral Shares (VFIAX)
• Schwab S&P 500 Index Fund (SWPPX)

Best S&P 500 Index Fund Reviews

Fidelity 500 Index Fund (FXAIX)

Why we chose it: Fidelity 500 Index Fund’s (FXAIX) low cost makes it one of the least expensive S&P 500 index funds.

Originally launched in 1988, FXAIX is an S&P 500 index fund that currently manages around $380 billion in assets, a significantly higher amount than similar competitors.

The fund stands out for its low operating costs, carrying one of the lowest expense ratios at 0.015%. Plus, it has no minimum investment requirements.

The fund’s portfolio closely replicates the performance of the S&P 500 by investing at least 80% of its assets in common stocks included in the index and lending securities to earn additional income.

The fund has a five-star rating from Morningstar for often outperforming most peers and its benchmark. In addition, Fidelity Investments, as a firm, has an above-average rating for staying ahead of competitors and adapting to investors' preferences.

Do note, however, that while the fund began operations in 1988, its current share class started trading in May 2011. This may be a drawback for investors looking for a fund with a long performance history.

Vanguard 500 Index Fund Admiral Shares (VFIAX)

Why we chose it: Vanguard 500 Index Fund Admiral Shares (VFIAX) stands out for its historical performance over time.

Vanguard is known for creating the first index fund in the U.S. available to retail investors and offering a wide selection of mutual funds. As such, the firm is often considered a solid choice for investors looking for a broadly diversified portfolio with a relatively low cost.

Since its inception in 2000, Admiral Shares has gained popularity among investors. It currently manages over $289 billion in assets. The “Admiral Shares” designation means the index fund carries lower fees and requires a lower initial investment of $3,000. As of this writing, the fund has an expense ratio of 0.04%.

Schwab S&P 500 Index Fund (SWPPX)

Why we chose it: Schwab S&P 500 Index Fund (SWPPX) has a two-decades long track record and a relatively low expense ratio, making it a low-cost option for most investors.

Charles Schwab is widely regarded as one of the top brokers of index funds, with hundreds of billions in assets under management across a handful of index funds and ETFs.

Its S&P 500 Index Fund — SWPPX — manages about $66 billion in assets, giving it a place among the top-performing passively managed funds. The fund has a low expense ratio of 0.02% and no minimum investment requirements.

Despite having fewer assets under management (AUM) than the other S&P 500 index funds in our list, SWPPX offers investors a competitive, well-diversified portfolio at a low cost.

Other S&P 500 Index Funds we considered

We also considered the S&P 500 index funds below, however, they didn’t make it to our top picks because they feature higher expense ratios, higher minimum investment requirements or have relatively recent inception dates.

iShares S&P 500 Index Fund (BSPAX)

iShares S&P 500 Index Fund (BSPAX) is another well-diversified portfolio of U.S. large-cap stocks. Its parent firm, BlackRock, is one of the largest asset managers with over $9 trillion in assets under management.

The fund requires an initial investment of $1,000 and closely resembles its peers. However, it didn’t make the final cut because it has an expense ratio of 0.35%, which is higher than our top picks (though still lower than the industry average).

Fidelity Flex 500 Index Fund (FDFIX)

Fidelity Flex 500 Index Fund (FDFIX) is a similar fund to FXAIX, with the difference that it manages a smaller-size portfolio of $3 billion and has no expense ratio. It’s also a more recent fund, with a commencement date of 2017. Despite its shorter track record, the fund has performed quite well, oftentimes outperforming its index, over a five-year period. However, we preferred funds with longer historical performance, which is why it didn’t make it to our top picks.

State Street S&P 500 Index Fund (SVSPX)

SVSPX has a 0.16% expense ratio, which is below the industry average but still higher than the other index funds on our list. Its $10,000 minimum initial investment is also higher, making it a less ideal option for some investors.

Fidelity ZERO Large Cap Index Fund (FNILX)

Fidelity ZERO Large Cap Index Fund (FNILX) is an S&P 500 index fund alternative, ideal for investors who want to avoid operating expenses and fees. Although the fund doesn’t directly track the S&P 500, it has a similar composition to Fidelity’s 500 Index Fund (FXAIX) investing about 27% of the portfolio in large-cap companies like Apple, Microsoft, Amazon and Tesla.

FNILX has no managing costs, hence its name, and no minimum investment requirements. However, FNILX didn’t make it to our top picks because it has a short historical performance, having been on the market for about five years.

S&P 500 Index Funds Guide

Read our guide to learn more about S&P 500 index funds, including how they work, how to invest in them and how to choose the best S&P 500 index fund for your portfolio.

What are S&P 500 Index funds?

S&P 500 index funds are a type of mutual fund that attempts to obtain similar results to that of its benchmark — the Standard & Poor’s 500 index, which is a value-weighted index that represents 500 of the largest publicly traded companies in the U.S..

Some of the companies that make up the S&P 500 include Apple, Google, Microsoft, Amazon and Tesla.

Most index funds are passively managed, which makes it relatively simple to invest in them. Index funds also tend to have a low expense ratio, since they have fewer management costs.

How do S&P 500 Index Funds work?

When you invest in an S&P 500 index fund, you're getting exposure to stocks across many different sectors with the same or a very similar proportion to the S&P 500 itself.

Since the fund’s manager seeks to replicate the index’s composition as closely as possible, the value of the fund and your investment will typically move in line with the index’s performance. Over time, the fund should also provide equivalent returns.

By buying shares of an S&P 500 index fund, you’re basically buying a portion of all the 500 companies that make up the index rather than investing in an individual company.

Advantages of investing in S&P 500 Index Funds

Investing in an S&P 500 index fund can help you save time and effort from having to research individual stocks and companies. It can also be a great option for diversifying your portfolio with a minimal initial investment.

Here are other key advantages of investing in an S&P 500 index fund:

• Diversification: Index funds allow you to get exposure to many companies by holding a single share of the fund. This can help you create a diversified portfolio without having to research companies individually.

• Reliable performance: Although past fund performance isn’t an indicator of future performance or returns, the S&P 500 is often considered a reliable option for a long-term investment strategy. Historically, it has delivered solid returns, generating an average annualized return of approximately 10%.

• Low costs: Compared to actively-managed funds, S&P 500 index funds have lower management fees since they don’t require frequent buying and selling of stocks. Consequently, these funds have a lower expense ratio, which can be key if you want to keep a higher portion of returns.

• Requires minimal investment: Most S&P 500 index funds require a small amount of money to start investing. In fact, most of the index funds in our list have no minimum initial investment requirements.

How to invest in S&P 500 Index Funds?

As with most securities, you can easily buy shares of an S&P 500 index fund through a brokerage firm.

Here are some steps you can follow:

1. Choose a broker: If you’re a first-time investor, look for an online trading platform or investment app that offers S&P 500 index funds, such as TD Ameritrade or Fidelity.
2. Open an account: The process for opening an account is often simple, though you will typically need to provide some personal information, such as your social security number, income and contact information.
3. Fund your account: Once you’ve set up your account, link your bank account and transfer funds to your brokerage account.
4. Pick an S&P 500 index fund: Choose an S&P 500 index fund that better matches your investment strategy and available funds. There are a few dozen S&P 500 index funds, each with different investment requirements and expense ratios.
   Our reviews could be a good place to start your research. It includes popular options, like Fidelity 500 Index Fund (FXAIX) and Vanguard 500 Index Fund Admiral Shares (VFIAX).
5. Invest: Decide how much you want to invest and place your order. You may also schedule recurring deposits if you want to invest a particular amount on a regular basis.

Check out our guide on how to invest in S&P 500, for more information.

How to choose an S&P 500 Index Fund

Investing in an S&P 500 index fund requires research and careful consideration since there are many different options. Your choice should depend on your risk tolerance, timeline and overall financial goals.

When choosing the best S&P 500 index fund for your portfolio, consider the following:

• Compare the expense ratio: Index funds have different annual operating expenses and fees that are passed to you as a percentage of your investment. These fees are typically expressed as the expense ratio which can range anywhere from 0.015% to over 1.50%.

Funds with lower expense ratios are preferable, since these fees can eat up your returns in the long run.

• Look at the fund’s historical performance: Although S&P 500 index funds invest in similar stocks, each fund can perform differently. Past performance can give you an idea of how the fund has performed over time.

Ideally, you should consider funds that outperform or perform very closely to the S&P 500.

• Evaluate the dividend yield: The dividend yield can help you determine how much the fund pays out in dividends.

If you're looking for long-term earnings and consistent returns, an index fund with high dividend yields and strong annual returns may be a good choice.

• Verify the minimum investment requirement: Make sure to check the fund’s minimum requirement before you make a decision. Although some funds don’t require a minimum investment, many require upward of $1,000 to start investing.

How we found the best S&P 500 Index Funds to Invest in

To find the best S&P 500 index funds, we asked Morningstar Direct for a list of S&P 500 tracking open-end funds suitable for retail investors, excluding ETFs, leveraged ETFs, and institutional and retirement funds.

We screened over 40 different S&P 500 index mutual funds and chose our top picks based on the following criteria:

• Expense Ratio: We looked for funds with the lowest possible fees to investors. Specifically, we based our decision on the net expense ratio, which measures the total cost of the fund, including transaction and management fees. We preferred funds with an expense ratio below 0.20%.

• Inception date: Because funds with a longer track record can give investors an idea of their performance over time, we preferred funds with longer operating histories over those with recent commencement dates.

• Minimum Investment: Some index funds target only high-net-worth individuals or institutional clients, requiring initial investments that close the door to small investors. Most of the index funds we selected have low to no minimum initial investment requirements.

• Assets under management (AUM): A fund’s AUM shows how much money it manages. Generally, a higher AUM indicates the fund is easily traded and, likely, a popular option among investors. We favored funds with at least $1 billion in assets under management.

• Morningstar rating: Morningstar ratings are highly regarded in the financial sector. The agency assigns a rating from one to five stars to each mutual fund and ETF based on fund flows and past performance. The highest rating is five stars. We only considered funds with a Morningstar rating of at least four stars.

Summary of the Best S&P 500 Index Funds of 2023

• Fidelity 500 Index Fund (FXAIX)
• Vanguard 500 Index Fund Admiral Shares (VFIAX)
• Schwab S&P 500 Index Fund (SWPPX)