The S&P 500, one of the best gauges for U.S. stocks, is also among the widest benchmarks available. It covers 500 leading companies, which comprise around 80 percent of the available market capitalization. According to S&P Global, over $11.2 trillion is indexed or benchmarked to the index. Therefore, many investors are interested in which ETFs offer exposure to the S&P 500.
I think there’s a large percentage of people out here that are convinced investing in an S&P 500 etf is a guaranteed 7% annual return for the coming decades— Rebel Markets (@rebelmarkets) September 7, 2020
The only somewhat “free lunch” in investing is dividends not performance. Nothing’s guaranteed
How to invest in S&P 500 companies
While you can’t directly invest in the S&P 500, there are investment instruments that mirror the index's returns. Investing in instruments that track returns of a particular index, be it the S&P 500 or the Dow Jones, is known as passive investing.
Investing in all of the S&P 500 companies would be cumbersome and expensive. Moreover, its components are revised periodically. Therefore, a more practical approach to get exposure is to invest in ETFs and index funds that track the index.
S&P 500 ETFs vs. index funds
ETFs and index funds tracking the S&P 500 are the two most popular and practical ways to get exposure to the index. An ETF is a basket of securities that tracks the underlying index. Whereas ETFs trade like stocks, index funds are mutual funds. ETFs can be bought and sold on an open exchange just like stocks and can be priced intraday. Mutual funds, on the other hand, are only priced at the end of the day. There are also cost differences between the two—while ETFs have lower expense ratios, their trading costs are higher.
The most popular S&P 500 ETFs
Of the many ETFs that track the S&P 500, there are leveraged, non-leveraged, and inverse ETFs. One of the most popular and the largest is the SPDR S&P 500 ETF (SPY). It has assets under management (or AUM) of nearly $300 billion, and an expense ratio of 0.09 percent.
The second-largest ETF tracking the index is the iShares Core S&P 500 ETF (IVV). The popular non-leveraged ETF has AUM of $215 billion. Its expense ratio is lower than SPY's at 0.03 percent, and it has fairly high liquidity. The third-largest S&P 500 ETF is the Vanguard S&P 500 ETF (VOO). Its expense ratio is on par with IVV's, at 0.03 percent, and it also has high liquidity. You should choose ETFs based on your cost, size, and liquidity preferences.
Leveraged S&P 500 ETFs
Among leveraged ETFs tracking the S&P 500, the Direxion Daily S&P 500 Bull 2x Shares ETF (SPUU), ProShares Ultra S&P 500 ETF (SSO), ProShares UltraPro S&P 500 ETF (UPRO), and Direxion Daily S&P 500 Bull 3x Shares ETF (SPXL) are the most popular. However, you should note that these ETFs have higher costs, and are riskier bets.
The most popular S&P 500 index funds
To get exposure to the S&P 500 through an index fund, the Fidelity 500 Index Fund (FXAIX) is a popular choice. Its expense ratio is 0.015 percent, and its AUM are $213 billion. It has the lowest costs among S&P 500 index funds. There's also the Schwab S&P 500 Index Fund (SWPPX), which has a slightly higher expense ratio of 0.02 percent and AUM of $40 billion.