The Cheapest S&P 500 Index Funds

Check Out Index Funds With Low Expense Ratios

By
Lee McGowan
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Lee McGowan is a certified financial planner, a certified financial analyst, and a fee-only financial advisor. He is the president and senior wealth advisor at Monument Group Wealth Advisors. His analysis and commentary have been published in The Wall Street Journal, Investor's Business Daily, and The Journal of Financial Planning (where he also served on the Advisory Board).
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Updated May 06, 2021
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Ariana Chávez
Ariana Chavez
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April 26, 2021
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Ariana has over a decade of professional experience in research, editing, and writing. She has spent time working in academia and digital publishing, specifically with content related to U.S. socioeconomic history and personal finance among other topics. She leverages this background as a fact checker for The Balance to ensure that facts cited in articles are accurate and appropriately sourced.
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Marguerita Cheng
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Article Reviewed
October 28, 2020
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Marguerita is a Certified Financial Planner (CFP®), Chartered Retirement Planning Counselor (CRPC®), Retirement Income Certified Professional (RICP®), and a Chartered Socially Responsible Investing Counselor (CSRIC). She has been working in the financial planning industry for over 20 years and spends her days helping her clients gain clarity, confidence, and control over their financial lives.

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While cheaper doesn't necessarily mean better, the best S&P 500 index funds tend to be the ones with the lowest expense ratios. You shouldn't base your decision to invest in an S&P 500 index solely on price, but if you plan to invest long-term, the seemingly small differences in fees can add up to a sizeable amount of money.

Here are some qualities of index funds you'll want to look at before buying:

Analyze the Tracking Error

The tracking error is a measure of an index fund's effectiveness in replicating or matching the performance of the benchmark index, which in this case is the S&P 500. One drawback of researching and analyzing this is that mutual fund families do not publicly display the tracking error of their index funds. However, there are a few data points you can research to analyze performance tracking.

Research sites such as Morningstar, Lipper, and Kiplinger show how close the historical performance of the fund has been to the target benchmark. If the returns are below the benchmark by roughly the same amount as the fund's expense ratio, the tracking error is close.


Here's an example: If a fund has an expense ratio of 0.2%, a five-year annualized return of 10%, and a benchmark return of 10.2%, the tracking error is precise.

Analyze the Expense Ratio

After looking at the historical performance, take into account the expense ratio. This will tell you how well the fund has tracked the benchmark index in the past. For example, if an S&P 500 index mutual fund has an expense ratio of 0.2%, a five-year annualized return of 10%, and a low tracking error, it might have an annualized return of roughly 9.8%. This means that the only difference between the index and the mutual fund's return is the fund's expenses.

Before Investing

Before deciding on an index fund to invest in, be sure to keep in mind other fees, such as trading costs. For example, if you already have an account at Vanguard, you may be charged a transaction fee to purchase a mutual fund like the Schwab S&P 500 Index, which is outside the Vanguard fund family. Typical transaction fees range between $10–$20.

If you are dollar-cost averaging by periodically purchasing shares of your S&P 500 index fund, the expense ratio may be lower, but the trading fees can make the fund more expensive than other options.

Here's a list of some of the cheapest S&P 500 funds you can buy with $1,000 or less:

Fidelity 500 Index Fund

investing_index funds_chart
Fidelity Spartan 500 Index. Getty Images

Symbol: FXAIX

Net Expense Ratio: 0.015%

Minimum Initial Investment: $0

Schwab S&P 500 Index Fund

investing_index funds_screen
Schwab S&P 500 Index. Getty Images

Symbol: SWPPX

Net Expense Ratio: 0.02%

Minimum Initial Investment: $0

State Street S&P 500 Index Fund

investing_coins
SSgA S&P 500 Index Fund. Getty Images

Symbol: SVSPX

Net Expense Ratio: 0.16%

Minimum Initial Investment: $1,000

Vanguard 500 Index Fund Admiral Shares

investing_coins_chart
Vanguard S&P 500 Index. Getty Images

Symbol: VFIAX

Net Expense Ratio: 0.04%

Minimum Initial Investment: $3,000

T. Rowe Price Equity Index 500 Fund

investing_US dollar
T. Rowe Price Equity Index 500 Fund. Getty Images

Symbol: PREIX

Net Expense Ratio: 0.19%

Minimum Initial Investment: $2,500 taxable account, $1,000 IRAs

USAA S&P 500 Index Fund Member Shares

investing_coins_flower pots
USAA S&P 500 Index Member Shares. Getty Images

Symbol: USSPX

Net Expense Ratio: 0.25%

Minimum Initial Investment: $3,000

Although S&P 500 index funds are all constructed to match and track the S&P 500, they are not the same across the board. Most notable are the differences in fees among funds.

A difference in fees between 0.01% and 0.03% may not be significant, but differences of 0.05% or more between funds can make a significant difference in your wealth through your working years leading into retirement.

Article Sources

  1. Fidelity. "Fidelity 500 Index Fund." Accessed April 26, 2021.

  2. Charles Schwab. "Schwab S&P 500 Index Fund." Accessed April 26, 2021.

  3. State Street Global Advisors. "State Street S&P 500 Index Fund - Class N." Accessed April 26, 2021.

  4. Vanguard. "Vanguard 500 Index Fund Admiral Shares." Accessed April 26, 2021.

  5. T. Rowe Price. "Equity Index 500 Fund." Accessed April 26, 2021.

  6. Yahoo! Finance. "USAA 500 Index Fund Member Shares (USSPX)." Accessed April 26, 2021.