The S&P 500 is widely considered to be the best and most reliable benchmark for the broader market. It measures the market value of the large companies listed on the NYSE or NASDAQ. It is a measure of their performance as a collective group. Furthermore, it's one of the most popular ways for investors to indirectly gain exposure to the U.S stock market without needing to invest directly in individual stocks. Dozens of S&P 500 ETFs are available, but not all offer great value for money. This article looks at some of the best S&P 500 ETFs that track the S&P 500 index with exceptional efficiency.
An S&P 500 ETF is an exchange-traded fund linked to the S&P 500 index. Investors can purchase the ETF shares through their brokerage accounts and have them held in their accounts. This is one of the most popular ways individuals can access the S&P 500 index. The S&P 500 is an index that tracks the largest companies on the stock market by market capitalization. The index is closely watched and used as a benchmark for many investors to measure the performance of their portfolio. The ETFs are priced throughout the day by exchange and passively managed. This means that the funds don't have a team of analysts trying to pick stocks but instead own shares of all the companies in the S&P 500.
One of the biggest advantages of purchasing one of the best S&P 500 ETFs is that it's a very low-cost way to own the broader market. It would be incredibly expensive if you were to try to invest in each of the 500 companies in the index individually. Indeed, if you tried to build a diversified portfolio using individual stocks, it would cost you a lot in commissions and management fees. That's because each of those stocks would require you to hire an investment advisor, who would charge you a percentage of your overall portfolio each year. In fact, many experts say that the most important thing an investor can do is reduce their costs. That's because a low-cost strategy will allow your portfolio to compound faster, which will increase your total return over time. Indeed, a typical investor with a low-cost strategy will be able to retire several years earlier than an investor with a high-cost strategy.
Another important benefit of purchasing the best S&P 500 ETFs is their very easy use. There are no complicated calculations that you have to do in order to determine how much to buy. Indeed, all you have to do is look up the most recent closing price for the index and then purchase the same number of shares through your brokerage account. Indeed, you won't have to do anything else. The ETF will be managed and rebalanced, which means it will constantly buy and sell stocks to match the index's composition. When new stocks enter the index and old ones fall out, the ETF will automatically buy shares of the new stocks and sell the old ones.
The best S&P 500 ETFs have very low tracking errors. Tracking error refers to how closely an investment tracks its benchmark index. If an ETF has a high tracking error, it will deviate from the index and potentially cause you to lose money. In fact, poor tracking error is one of the biggest reasons actively managed funds fail to produce above-average returns. Yet, an S&P 500 ETF has very low tracking errors. In fact, the tracking errors are so low that they are almost identical to the index's performance. Indeed, a tracking error of just 0.1% will reduce your total return by less than 0.1%. That's an error you can easily ignore because it doesn't impact your investment strategy. That's why many investors prefer S&P 500 ETFs over actively managed funds: they know that the tracking errors won't cause them to lose money.
The Vanguard S&P 500 ETF (VOO) is one of the most widely traded funds in the U.S market, and for a good reason. VOO tracks the S&P 500 index with impressive accuracy, with a tracking difference of just 0.02%. This means that the ETF will closely replicate the index's returns with very little deviation. Moreover, VOO charges a very low expense ratio of just 0.04%, which means that the ETF's net returns will be slightly higher than the index's. VOO also has a very high trading volume, which means that investors will have a little issue getting in and out of the fund at favorable prices.
The iShares Core S&P 500 ETF (IVV) is an excellent choice for investors who want exposure to the entire S&P 500 index but don't want to bother with sector or style diversification. This fund is designed to deliver the full market return minus a very low expense ratio of just 0.03%. IVV is a very liquid ETF with a high trading volume and a low tracking difference of 0.05%.
The SPDR S&P 500 ETF (SPY) is the oldest and most established S&P 500 ETF in the market, and it shows. SPY has a very low tracking difference of just 0.05%, which means that it very closely replicates the index's performance. Moreover, SPY has a very low expense ratio of just 0.09%, which is very competitive compared to other ETFs. SPY is also a very liquid ETF with high trading volume, which means that investors will face little slippage when buying or selling the fund.
The ProShares Ultra S&P 500 (SSO) is an excellent choice for investors who want to gain double the return of the S&P 500 index with just a single fund. SSO tracks a measure of the S&P 500 index designed to double its returns over a calendar year. SSO charges a very low expense ratio of just 0.09%, which is less than half of what other S&P 500 ETFs charge. This fund is extremely popular with traders due to its significant daily trading volume.
The ProShares UltraPro S&P 500 (UUU) is designed as a long-term investment that aims to deliver double the returns of the S&P 500 index over 10 years. UUU charges a very low annual net expense ratio of just 0.35%. UUU uses leverage to increase its returns, which means there is a slight possibility of significant losses if the market heads in the opposite direction. This ETF is ideal for long-term investors who want to indirectly gain exposure to the broader stock market but don't want to deal with the added complexities of sector and style diversification.
The S&P 500 is the most popular benchmark for the broader U.S stock market and the most commonly used benchmark for stocks traded on the NASDAQ and NYSE. The S&P 500 is a highly diverse index that consists of 505 large-cap stocks, which means that investors who gain exposure to the S&P 500 will have a high amount of overall market exposure. Investors can gain exposure to the S&P 500 by investing in one of the best S&P 500 ETFs. But not all ETFs are created equal. The best S&P 500 ETFs will have a low tracking difference and expense ratio.