From FXAIX to VFIAX, explore the best S&P 500 index funds available in 2025 and how to choose the right one for your strategy.
Why the S&P 500 Remains a Cornerstone for U.S. Investors
The S&P 500 Index represents a diversified collection of 500 of the largest publicly traded U.S. companies. These firms span across all major sectors, making the index a reliable barometer for the overall health of the U.S. economy. It uses a market capitalization-weighted methodology, meaning the largest companies like Apple, Microsoft, and Amazon carry more influence on the index’s performance.
Historically, the S&P 500 has delivered an average annual return of about 10%, including dividends, making it a strong performer for long-term investors. While it does experience short-term volatility, its long-term growth trajectory has made it a popular choice for building wealth steadily over decades. Its performance is closely correlated with the broader U.S. stock market, giving investors a representative slice of American economic activity.
Because of its strong track record and simplicity, the S&P 500 is a default holding in many retirement accounts, including 401(k)s and IRAs. It also forms the backbone of many robo-advisor portfolios and passive investment strategies. For anyone looking to invest in U.S. equities without picking individual stocks, S&P 500 index funds offer a low-cost, diversified option.
How to Choose the Best S&P 500 Index Fund
Not all S&P 500 index funds are built the same. While they aim to track the same index, differences in fees, fund structures, and accessibility can affect performance and suitability for different types of investors.
Key Evaluation Metrics
When comparing funds, start with the expense ratio. This fee is taken directly from your returns, so even small differences matter over time. A fund charging 0.02% will generally outperform one charging 0.33%, assuming they both track the index equally well.
Next, look at tracking error, which measures how closely a fund follows the index. A lower tracking error indicates better management efficiency.
Minimum investment requirements can also vary. Some funds have no minimums, which is helpful for new investors. Others may require a few thousand dollars upfront.
Also consider dividend distribution schedules. Some funds pay quarterly; others do so annually. If you rely on income or plan to reinvest dividends, this can influence your choice.
Cost vs. Performance: Why Fees Matter
While all S&P 500 index funds follow the same benchmark, higher-cost funds tend to lag over time due to fee drag. A 0.3% difference in fees might not seem like much, but over 30 years, that could translate to tens of thousands of dollars lost in potential growth, especially in tax-deferred accounts where compounding is most powerful.
Low-cost funds don’t just preserve returns—they also tend to be more tax-efficient and widely accessible. In most cases, the lower the fee, the better the outcome for long-term investors.
Top 7 S&P 500 Index Funds to Consider in 2025
These funds offer broad market exposure with varying fee structures, accessibility, and fund types. Each is a strong option, but the right choice depends on your platform, investing goals, and preferences.
Fidelity 500 Index Fund (FXAIX)
FXAIX stands out with one of the lowest expense ratios in the market at 0.015%. There’s no minimum investment, making it accessible for beginners and ideal for dollar-cost averaging. Dividends are distributed quarterly, and the fund consistently tracks the S&P 500 closely with minimal deviation.
Schwab S&P 500 Index Fund (SWPPX)
SWPPX charges just 0.02% in expenses and also has no minimum investment. Schwab’s platform allows fractional share purchases, which is useful for those starting with small amounts. This fund distributes dividends annually in December and is known for high liquidity and tax efficiency.
Vanguard 500 Index Fund Admiral Shares (VFIAX)
VFIAX is a staple for long-term investors. With a low 0.04% expense ratio, it benefits from Vanguard’s shareholder-owned structure, which typically results in cost efficiency and strong performance alignment. A $3,000 minimum is required, but investors get exposure to the full index and quarterly distributions.
iShares Core S&P 500 ETF (IVV)
IVV is an ETF version of the S&P 500 index fund and trades like a stock throughout the day. It has an expense ratio of 0.03%, high liquidity, and typically a very low tracking error. Being an ETF, it’s well-suited for taxable accounts and active traders who want intra-day pricing.
SPDR S&P 500 ETF Trust (SPY)
SPY is the oldest and one of the most heavily traded ETFs in the world. Its 0.09% expense ratio is slightly higher than peers, but it offers unmatched liquidity and trading volume. It’s popular with institutional investors and is often used for tactical exposure or short-term positioning.
T. Rowe Price Equity Index 500 Fund (PREIX)
PREIX comes with a 0.18% expense ratio and a $2,500 minimum investment, though some retirement accounts waive this. It’s a common option in employer-sponsored plans and benefits from T. Rowe Price’s established reputation. While the fee is higher than competitors, it’s still lower than many actively managed funds.
Principal LargeCap S&P 500 Index Fund (PLSAX)
PLSAX charges a higher 0.33% and includes a 1.5% front-end load, making it less appealing for fee-sensitive investors. However, it has delivered strong long-term returns and is rated highly by Morningstar. Distributions occur annually, and the fund requires a $1,000 minimum. It’s best suited for investors already using Principal’s platform.
S&P 500 Index Funds vs. Total Market Index Funds
While S&P 500 funds track large-cap U.S. companies, total market index funds go further by including mid- and small-cap stocks. That means funds like Vanguard Total Stock Market Index Fund (VTSAX) or Fidelity Total Market Index Fund (FSKAX) hold thousands of stocks—compared to 500 in S&P 500 funds.
This broader exposure can lead to slightly higher volatility, but it also offers more diversification. Historically, total market funds have delivered similar returns to S&P 500 funds, with slight differences depending on how small-cap stocks perform.
For most investors, either fund type works well. The S&P 500 gives you exposure to the companies that drive most of the market’s performance. A total market fund adds smaller companies that may offer growth potential, especially over longer periods. If you’re already invested in large-cap funds, adding a total market fund may lead to redundancy. But for those seeking full U.S. equity exposure in a single fund, total market options are worth considering.
FAQ: Choosing and Investing in S&P 500 Index Funds
What’s the best S&P 500 fund for beginners?
For new investors, Fidelity 500 Index Fund (FXAIX) or Schwab S&P 500 Index Fund (SWPPX) are good starting points. Both have no minimum investment and extremely low fees.
Are ETFs better than mutual funds?
ETFs like IVV and SPY offer more flexibility, including the ability to trade throughout the day. Mutual funds, such as VFIAX, only trade once daily but are ideal for retirement accounts and automatic investing.
Can I hold these funds in a Roth IRA?
Yes. All the funds listed can be held in Roth IRAs, traditional IRAs, and taxable accounts. Roth IRAs are particularly effective for long-term S&P 500 fund investing, since qualified withdrawals are tax-free.
How are dividends taxed in these funds?
In taxable accounts, dividends are typically taxed as ordinary income or qualified dividends, depending on how long you’ve held the fund and the underlying stocks. In IRAs and 401(k)s, taxes are deferred or eliminated, depending on the account type.
Is now a good time to invest in the S&P 500?
If you have a long-term horizon, market timing matters less than consistency. Investing regularly through dollar-cost averaging is a proven strategy, regardless of short-term volatility. The S&P 500 continues to be a core component of long-term wealth-building strategies.
