Want to invest in the S&P 500? Here are 4 ETFs. Which is the best?

One of the easiest ways to invest, while diversifying your portfolio well, is to invest in an ETF that replicates a market index, specifically the S&P 500. Today, we'll take a look at 4 ETFs that track this index. Which ones are best to buy?

Many investors don't have the time, or even the inclination, to dissect individual stock picks. For these investors, there's an ideal way to invest that's time-saving and also doesn't require any great analytical skills. It is passive investing through ETFs. Probably the most well-known method is to buy ETFs that replicate the S&P 500 index on a regular basis. After all, this method of investing is recommended to investors by Warren Buffett himself.

https://www.youtube.com/watch?v=IW0oplTg6j8

There are plenty of ETFs that copy this major US index. Today, we're going to take a brief look at the 4 main ETFs on the S&P 500 index, and which one is currently the best for investors.

Why the S&P 500?

I chose the S&P 500 ETF mainly because this index is practically the benchmark for the US markets. It's an index that includes the 500 largest U.S. companies, so I think for a passive investor or a novice investor, this is a pretty decent diversification, and also protection from loss. In short, you'll find all the well-known companies in this index.

SPDR S&P 500 ETF Trust $SPY-0.7%

A chart of ETF prices over the past 5 years.

This ETF was launched by State Street Global Advisors in January 1993 and is the oldest and largest ETF tracking the S&P 500 Index to date. In short, it is the granddaddy of all ETFs on this index. It is also, in my opinion, the most well-known ETF in the world, and I think every country will know about it. What's not known so much anymore are the differences from the others.

So one of the biggest advantages that this ETF has is the high liquidity, and the large trading volume, which makes it the most liquid ETF. This is also reflected in the price differences between BID and ASK, where these differences are minimal compared to other ETFs. The company currently has $379 billion in assets under management. The annual dividend yield on this ETF has been roughly 1.55%.

On the other hand, this is a fund that is relatively expensive in terms of fees compared to others. In fact, the fund charges a fee of 0.095%, making it one of the most expensive funds.

Advantages:

  • A long and varied history that dates back to 1993. This ETF managed to weather both the dot com bubble in 2000 and the mortgage crisis in 2008. It is a time-tested fund.
  • Of the 4 funds, this one has the most investor assets under management, which also underscores its credibility. In terms of value of assets under management, it is the largest of the 4 funds mentioned.
  • It is also the most liquid ETF. This allows investors to buy and sell with greater peace of mind as it has the largest daily trading volumes

Disadvantages:

  • This ETF is the most expensive in terms of fees. Its competitors have fees as high as one-third. In short, you have to expect to pay extra here.
  • Another problem here is that this ETF is not available to European investors. But I have already solved this problem, and I recently wrote an article here on how to buy such ETFs.
  • It also currently has the lowest dividend yield of the 4 funds mentioned. The difference is not marked, but it is there.

iShares Core S&P 500 ETF $IVV-0.6%

A chart of the ETF's price over the past 5 years.

One of the most important, and largest, investment companies in the world, BlackRock, is behind this ETF. This ETF was created in 2000, so at the time of the bursting of the dot com bubble. This ETF is very well known, but not as much as SPY. Which is then reflected in some aspects of this ETF.

One of the aspects where this is reflected is the costs that the investor has to pay. Here it is only 0.03%, which is significantly less than the previous ETF. This ETF also tracks the S&P 500 index, and has roughly $311 billion in assets under management. The dividend yield over the past 12 months was 1.57%.

In terms of liquidity, it is not as high here as it was in the previous case, but even so, there shouldn't be a complete problem with buying and possibly selling this ETF, there just may be a bigger difference between the BID and ASK price.

Pros:

  • One of the leading advantages of this ETF is the low cost, which is 0.03% per year, about a third of the cost of the SPY ETF.
  • One of the other benefits here is the slightly higher dividend yield, which can also make a decent difference over time.

Disadvantages:

  • One of those biggest drawbacks is just the liquidity of this ETF, which is lower than the previous case. This can create a bigger gap between the BID and ASK price. In the worst case scenario, if there is not enough liquidity in the market, it may be a problem to sell this ETF.
  • Another such downside here is the value of assets under management, which here is USD 311 billion, in that respect it is a smaller ETF than the previous case. For some investors, this may play a role in psychology, for example.
  • The last point I wouldn't take as a disadvantage at all, but rather just as an addition, and that is that this ETF has been on the exchange for a shorter time than SPY, but it has still been here long enough to have experienced something. Price-wise, these first 2 ETFs come out about the same.

Vanguard S&P 500 ETF $VOO-0.7%

A chart of ETF prices over the past 5 years.

The company behind this ETF is Vanguard, which is fairly well known in the world. This ETF was created in 2010, so it is only some 12 to 13 years old. It can therefore be said that it has only partially experienced the economic crisis, and the stock price drop in 2020. Of these 4 ETFs, it has been on the exchange for the shortest period of time. But despite this, it has managed to closely copy the S&P 500 index. The dividend yield here is 1.59% over the past 12 months. As for fees, it is on par with the aforementioned competitor from BlackRock, so here too we find an annual cost of 0.03%.

By being a relatively new ETF, there are areas where this is noticeable. For example, liquidity and trading volumes here are significantly lower than the previous 2 ETFs. Another thing is the size of the fund, or rather the size of the assets that the fund manages, which is approximately USD 282 billion. This is also reflected in the price of this ETF, which is slightly lower than the previous two.

Advantages:

  • One advantage for some investors may be the price of this ETF, which is lower than the previous two competitors.
  • Another advantage is again the low fees, with annual expenses of only 0.03%.
  • This ETF currently offers a dividend yield of 1.59%, which is even higher than the previous two.

Disadvantages:

  • This ETF has been on the exchange for the shortest period of time out of all 4, which is suggested by the other drawbacks that can occur here.
  • One of the main drawbacks is the significantly less liquidity than in the previous two cases, where we may find ourselves in a situation where, if we sell the ETF, there will be no counterparty left to buy it from us and we will have to discount our claims. Long-term holding eliminates this situation considerably.
  • Another disadvantage is the assets under management, where this aspect can again have more of a psychological effect on investors. In short, the company hasn't been around that long, so it hasn't managed to accumulate that many assets under its management.

SPDR Portfolio S&P 500 ETF $SPLG-0.6%

A chart of the ETF's price over the past 5 years.

Last up is the SPDR Portfolio S&P 500 ETF from State Street Global Advisors. This ETF was launched in 2005, and in my personal opinion it is the least attractive choice of the 4 mentioned. If only for the fact that it offers exactly the same high fees as Vanguard's ETF, along with exactly the same high dividend yield.

But on the other hand, it has far fewer assets under its management, and the trading volumes here are not higher either. Thus, this ETF doesn't bring much extra benefit over the other three ETFs mentioned above. However, it does have one advantage, especially for investors who don't have a lot of capital and want to invest in the S&P 500 on a regular basis. This is because this ETF is the cheapest of the 4.

Advantages:

  • The main advantage here is the price of this ETF, which is quite low. This is mainly due to the size of the assets that the company has under management.
  • Of course, the low fees can also be counted as an advantage, but they are exactly the same for the last 3 ETFs. The same applies to the dividend yield, which is also not that different.

Disadvantages:

  • The biggest one might be the amount of assets the company has under its management. Despite being on the exchange longer than its competitors, it lags in this regard. This could just be because it is not as popular an ETF, thus not as many investors invest in it.
  • Another disadvantage that comes with this is the lower liquidity, which can cause complications when buying or selling ETFs, and can also cause larger price differences between BID and ASK. Of course, this can be largely eliminated by long-term investment.

Which ETF is right?

There is no universal guide that says this or that ETF is best. In short, one must choose according to preference. Since the composition of these ETFs is virtually the same here, let's try to break it down by these aforementioned metrics.

$SPY-0.7% - If you are looking for quality that has been proven over the years, while not worrying so much about fees, and are able to shave off a few hundredths of a % return, then this ETF is the right choice for you here. The high liquidity allows you to buy at any time and also sell at any time. Unfortunately, you'll have to pay extra for this ETF in the form of annual expenses, which are three times higher than the competition. But it's kind of a sure thing.

$IVV-0.6% - If you care about how much you're paying in fees and also making sure you're getting the maximum dividend yield currently, I'd personally reach for this ETF. It doesn't have the highest dividend yield of the 4 mentioned above, but it's kind of a happy medium that has also been in the stock market for quite a while. But you have to settle for less liquidity here than in the case mentioned above.

$VOO-0.7% - If you don't mind even less liquidity than the previous 2 cases, and you also want the highest dividend yield currently, then I would reach for this ETF. You can even get it a few dollars cheaper than the previous 2 competitors. However, it is not as popular an ETF as it was in the previous 2 cases. Personally, I would rather prefer IVV.

$SPLG-0.6% - If you don't have a broker that doesn't support buying fractional stocks, and you also want to invest regularly in the S&P 500 index, but don't have the funds to buy one of the three ETFs mentioned above, you can take advantage of the fact that this ETF trades at a relatively low price. However, you have to accept that it is not as well-known as its first 2 competitors, and the lower liquidity corresponds to that, but you can mostly eliminate that by just investing for the long term.

Conclusion

Today we have looked at ETFs from a slightly different perspective. And as you can see, while these ETFs replicate the same underlying asset, they are slightly different from each other. Yes those differences in fees, and in dividend yield are not somehow fundamental, but over the long term they can become quite pronounced.

I personally use $SPY-0.7% for option trades, and as far as an ETF to invest in, for me personally I would choose the BlackRock ETF. In short, I'd go sort of the middle ground where the overall look of the ETF probably works best for me, both the fees, the dividend yield, and the potential liquidity if I decide to sell the ETF.

WARNING: I am not a financial advisor, and this material does not serve as a financial or investment recommendation. The content of this material is purely informational.

Read the full article for free?
Go ahead 👇

Do you have an account? Then log in . Or create a new one .

No comments yet
Timeline Tracker Overview