Investment Strategies: S And P 500 ETFs Guide is your essential resource for understanding, selecting, and investing in S and P 500 ETFs. As one of the most popular ways to gain diversified exposure to the U.S. stock market, S and P 500 ETFs offer both novice and experienced investors a simple, cost-effective path to long-term growth. In this guide, we’ll explore what S and P 500 ETFs are, how to invest in them, how to choose the best SP500 ETF for your needs, and whether it’s possible to find an ETF that consistently outperforms the S&P 500.
What Are S And P 500 ETFs?
S and P 500 ETFs, or exchange-traded funds tracking the S&P 500 index, are investment funds designed to mirror the performance of the S&P 500—a benchmark index representing 500 of the largest publicly traded companies in the United States. These ETFs allow investors to own a broad slice of the U.S. equity market through a single security, making them a cornerstone of many diversified portfolios.
The S&P 500 index itself is widely regarded as a barometer of the U.S. stock market’s overall health. By purchasing shares of an S and P 500 ETF, investors gain exposure to companies across all major sectors, including technology, healthcare, finance, and consumer goods. This built-in diversification helps reduce the risk associated with investing in individual stocks.
Popular S and P 500 ETFs include the Vanguard S&P 500 ETF (VOO), iShares Core S&P 500 ETF (IVV), and SPDR S&P 500 ETF Trust (SPY). These funds all closely track the index but may differ slightly in terms of expense ratios, trading volume, and structure. For most investors, owning just one S and P 500 ETF is sufficient to capture the broad market’s performance.
How to Invest in S And P 500 ETFs
Investing in S and P 500 ETFs is straightforward and accessible for most individuals. Here’s a step-by-step approach to getting started:
1. Open a Brokerage Account: To purchase S and P 500 ETFs, you’ll need an account with a brokerage platform. Many online brokers now offer commission-free trading for ETFs, making it easy and cost-effective to get started.
2. Choose Your ETF: Research the most popular S and P 500 ETFs—such as VOO, IVV, or SPY. Compare their expense ratios, liquidity, and any unique features. While all track the same index, small differences in fees or fund structure can impact long-term returns.
3. Place Your Order: ETFs trade like stocks, so you can buy or sell shares at any time during market hours. Decide how many shares you want to purchase and use your brokerage’s trading platform to execute the trade. Fractional shares may also be available, allowing you to invest any dollar amount.
4. Monitor and Rebalance: After investing, periodically review your holdings to ensure they align with your financial goals. While S and P 500 ETFs are designed for long-term growth, it’s wise to rebalance your portfolio as your needs change.
Investing in S and P 500 ETFs is considered a passive strategy, relying on the long-term growth of the overall market rather than attempting to pick individual winners. Over the past several decades, the S&P 500 has delivered average annual returns of about 10%, making it a favored choice for building wealth over time.
Comparing the Best SP500 ETFs
With several S and P 500 ETFs available, how do you choose the best SP500 ETF for your portfolio? The most popular options—VOO, IVV, and SPY—share many similarities but also have subtle differences worth considering.
Vanguard S&P 500 ETF (VOO): Known for its ultra-low expense ratio (0.03%) and strong long-term performance, VOO is a favorite among cost-conscious investors. As of mid-2025, VOO has become the world’s largest ETF, surpassing SPY in assets under management.
iShares Core S&P 500 ETF (IVV): IVV matches VOO’s low fees and liquidity, making it another excellent choice. It is widely available across brokerage platforms and is especially popular in retirement accounts.
SPDR S&P 500 ETF Trust (SPY): As the original and most traded S and P 500 ETF, SPY offers unmatched liquidity and tight bid-ask spreads. However, its expense ratio (0.095%) is slightly higher than VOO and IVV, which can add up over time for long-term investors.
SPDR Portfolio S&P 500 ETF (SPLG): With an even lower expense ratio (0.02%), SPLG is a newer contender that offers similar exposure at minimal cost.
While all these ETFs track the S&P 500, differences in structure, fees, and trading volume may influence your decision. For most investors, selecting the ETF with the lowest fees and highest liquidity is a smart move. Remember, past performance is not guaranteed, but lower expenses can give you a slight edge over the long term.
Can Any ETF Outperform the S&P 500?
The question of whether there is an ETF that outperforms the S&P 500 is a common one. While some funds attempt to beat the index by employing alternative weighting strategies, focusing on specific sectors, or using leverage, consistently outperforming the S&P 500 over the long term is extremely challenging.
Some ETFs may temporarily outperform the S&P 500 due to unique strategies, such as equal weighting or focusing on growth or value stocks. However, these approaches often come with higher risk, increased volatility, and higher fees. Additionally, periods of outperformance are typically followed by periods of underperformance, making it difficult for most investors to stay ahead of the market consistently.
For the vast majority of individuals, sticking with a low-cost S and P 500 ETF remains one of the most reliable ways to participate in the growth of the U.S. economy. Attempting to chase returns with more complex ETFs can result in higher costs and greater risk, undermining your long-term investment goals.
Ultimately, while it’s possible to find an ETF that outperforms the S&P 500 over short periods, maintaining that outperformance over many years is rare. The simplicity, diversification, and historical performance of S and P 500 ETFs make them a core holding for investors focused on steady, long-term growth.