S&P 500 Index Fund: Everything You Need to Know
The S&P 500 index fund is the single most widely owned investment in the world. Millions of investors — from complete beginners to sophisticated institutions — hold S&P 500 index funds as the core of their portfolios. Warren Buffett has recommended S&P 500 index funds for most investors. This guide covers everything you need to know about what the S&P 500 is, why people invest in it, and exactly how to get started.
Disclaimer: This content is for educational purposes only and does not constitute financial advice. Past performance does not guarantee future results. Consult a qualified financial advisor for advice specific to your situation.
What is the S&P 500?
The S&P 500 — Standard and Poor’s 500 — is a stock market index that tracks the 500 largest publicly traded companies in the United States by market capitalization. It was created in 1957 and is widely considered the best single indicator of the overall US stock market. The S&P 500 includes companies across all major industries — technology, healthcare, financials, consumer goods, energy, industrials, and more. Read our guide on What is an Index Fund? for foundational context on how index funds work.
Which Companies Are in the S&P 500?
The S&P 500 includes America’s largest and most established companies. The largest holdings by market cap typically include Apple, Microsoft, Amazon, NVIDIA, Alphabet (Google), Meta (Facebook), Berkshire Hathaway, Tesla, and Johnson & Johnson — though rankings change constantly as market values fluctuate. The index is market-cap weighted, meaning larger companies make up a larger percentage of the index. When you invest in an S&P 500 fund, you automatically own a piece of all 500 companies proportional to their size.
Historical Performance of the S&P 500
The S&P 500 has delivered impressive long-term returns throughout its history. The average annual return of the S&P 500 from 1957 through 2023 has been approximately 10.5% per year including dividends. This is a nominal return — after inflation, the real return is approximately 7% per year. No investment generates steady 10% returns every year — there are volatile years, bear markets, and crashes. But over any 15 to 20 year period in the S&P 500’s history, investors who stayed invested have been rewarded.
Key historical performance data: the S&P 500 has returned positive results in approximately 73% of all calendar years since 1928, negative results in approximately 27% of years, and has never failed to recover from any bear market or crash in its history.
S&P 500 vs Total Stock Market Index
The S&P 500 covers the 500 largest US companies. A total stock market index fund covers approximately 3,500 to 4,000 US companies — adding mid-cap and small-cap stocks not in the S&P 500. Historically, the performance difference between the two has been very small. For most long-term investors, either is an excellent choice. The total market fund provides slightly broader diversification, while the S&P 500 focuses on the most established large companies. See our guide on Best Index Funds for Beginners for a comparison.
Best S&P 500 Index Funds to Buy in 2024
Fidelity 500 Index Fund (FXAIX) — Best Overall for Beginners
Expense ratio: 0.015%. No minimum investment. Only available at Fidelity but the lowest cost S&P 500 mutual fund available anywhere. If you have or plan to open a Fidelity account, FXAIX is the top recommendation for S&P 500 exposure.
Vanguard S&P 500 ETF (VOO) — Best ETF Option
Expense ratio: 0.03%. No minimum investment (buy one share or fractional shares). Available at any brokerage. One of the largest and most liquid ETFs in the world with over $400 billion in assets. If you want an S&P 500 fund you can hold at any brokerage, VOO is the top choice.
Schwab S&P 500 Index Fund (SWPPX) — Best for Schwab Customers
Expense ratio: 0.02%. No minimum investment. Excellent option for Schwab account holders. Nearly identical performance to FXAIX and VOO at similar cost.
iShares Core S&P 500 ETF (IVV) — Best ETF Alternative to VOO
Expense ratio: 0.03%. No minimum. Available at all brokerages. Virtually identical to VOO in structure, cost, and performance. Some brokerages offer commission-free trading on IVV but not VOO, making it the better choice at those platforms.
How to Invest in an S&P 500 Index Fund — Step by Step
Step 1: Open a brokerage account at Fidelity, Vanguard, or Schwab if you do not have one. Read our guide on How to Start Investing in Index Funds for account opening instructions.
Step 2: Fund your account by transferring money from your bank.
Step 3: Search for your chosen fund by ticker symbol — FXAIX, VOO, SWPPX, or IVV.
Step 4: Enter the dollar amount you want to invest and confirm the purchase.
Step 5: Set up automatic monthly contributions. Read our guide on Dollar Cost Averaging With Index Funds for how to automate this.
Common Questions About S&P 500 Index Funds
Is the S&P 500 safe? The S&P 500 is not without risk — it can drop significantly in the short term. But over long periods of 15+ years, it has never generated negative returns historically. It is a long-term investment, not a savings account.
Should I invest all my money in the S&P 500? Many investors do hold a significant portion in S&P 500 funds. Adding some international index fund exposure provides broader global diversification. Read our guide on The Three Fund Portfolio for a diversified approach.
When is the best time to invest? The data consistently shows that time in the market beats timing the market. The best time to invest in an S&P 500 fund is now, and then again every month consistently.
Conclusion
The S&P 500 index fund is one of the simplest, most proven, and most accessible investments ever created. It gives any investor instant ownership of America’s 500 largest companies at extremely low cost. For most long-term investors, an S&P 500 or total market index fund is the single best place to build wealth over time. Continue with Best Index Funds for Beginners and Index Fund Taxes: What Every Investor Needs to Know.