For those new to investing, figuring out where to start can feel overwhelming. An S&P 500 ETF (Exchange-Traded Fund) is one of the most popular choices for beginners—and for good reason. Offering a simple, low-cost way to invest in 500 of the largest companies in the U.S., an S&P 500 ETF can be an excellent foundation for any portfolio. Let’s explore why it’s so popular, its benefits, and some of the best S&P 500 ETFs to consider, including SPLG and VOO.
What is an S&P 500 ETF?
An S&P 500 ETF tracks the performance of the S&P 500 index, a benchmark representing 500 leading companies across various sectors like technology, healthcare, and consumer goods. By investing in an S&P 500 ETF, you gain exposure to a diverse range of large, established companies in a single, cost-effective investment.
Key Benefits of Investing in an S&P 500 ETF
Diversification Made Simple
An S&P 500 ETF provides automatic diversification across multiple sectors, reducing the risk that comes with holding individual stocks. This balance helps stabilize your portfolio since losses in one sector may be offset by gains in another.
Low Fees
S&P 500 ETFs typically have very low expense ratios, meaning you pay less in fees, allowing more of your investment to grow. Because these funds track an index and are passively managed, they often cost significantly less than actively managed funds.
Long-Term Growth Potential
Historically, the S&P 500 index has delivered average annual returns of around 10%. While the market can fluctuate in the short term, an S&P 500 ETF is a reliable option for those looking to build wealth gradually over time.
Simplicity for Beginners
For new investors, simplicity is key. S&P 500 ETFs don’t require constant monitoring or a deep understanding of individual companies, making them a stress-free option.
Popular S&P 500 ETFs to Consider
If you’re ready to invest, here are three well-regarded S&P 500 ETFs to consider:
- SPDR Portfolio S&P 500 ETF (SPLG): Known for its ultra-low expense ratio of 0.03%, SPLG is a cost-effective option that gives you broad exposure to the S&P 500. This ETF is often ideal for long-term, cost-conscious investors who want to maximize returns by minimizing fees.
- Vanguard S&P 500 ETF (VOO): VOO is another top choice, especially popular with Vanguard users. Like SPLG, it has a low expense ratio (0.03%) and delivers the same exposure to the S&P 500’s leading companies, making it a favorite among retirement investors.
- iShares Core S&P 500 ETF (IVV): Offered by iShares, IVV is also designed to closely track the S&P 500 with a low expense ratio (0.03%). With high liquidity, it’s a reliable option for those looking for flexibility and stability in their investment.
Why is the S&P 500 ETF Common in 401(k) Plans?
For many employees, 401(k) plans are their first introduction to investing. S&P 500 funds are a frequent choice in 401(k)s due to their low costs and historical performance. Because these funds are diversified and align with long-term growth, they’re particularly suitable for retirement savings. In fact, a large portion of 401(k) assets are invested in funds tracking the S&P 500, providing a foundation for many employees’ retirement plans.
Getting Started
Starting with an S&P 500 ETF is simple. Most major brokerages offer low-cost ETFs that you can buy directly, including those from Vanguard, Charles Schwab, and Fidelity. Just open an account, fund it, and you’re ready to invest.
Investing in an S&P 500 ETF provides a blend of diversification, low fees, and steady growth, making it a solid choice for beginner investors. With options like SPLG, VOO, and IVV, getting started with an S&P 500 ETF is accessible and straightforward. Whether you’re saving for retirement or building wealth over time, an S&P 500 ETF can help you achieve long-term financial goals with minimal hassle.