Exchange-traded funds (ETFs) tracking the Standard and Poor's (S&P) 500 Index offer the benefits of stock ownership and the convenience of mutual funds. An ETF is a "security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange," according to Investopedia.com. The S&P 500 is "an index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors."
Although several ETFs contain the phrase "S&P 500," only three match the index's performance. When choosing an investment, remember to consider the expense ratio, or the "measure of what it costs an investment company to operate a fund," according to Investopedia.com. "Operating expenses are taken out of a fund's assets and lower the return to a fund's investors."
Vanguard S&P 500 ETF
Started in, the Vanguard S&P 500 ETF (symbol: VOO) is the youngest of the group. As of March 15, 2011, this fund has more than $109 billion in net assets and charges an annual expense ratio of 0.06 percent. While it's normally wise to stay away from newly issued ETFs, Vanguard is an established name, and the S&P 500 is a broad market.
iShares S&P 500 Index Fund ETF
The iShares S&P 500 Index Fund ETF (symbol: IVV) was created in 2000 and has seen two major recessions. As of March 15, 2011, IVV this ETF has more than $27 billion in net assets and an expense ratio of 0.09 percent. iShares has been managing ETFs since 1996 and is one of the most recognized brands in the industry.
SPDR S&P 500 ETF
The oldest ETF in this category is the SPDR S&P 500 ETF (symbol: SPY), which was launched in 1993. As of March 15, 2011, this fund has more than $95 billion in net assets and an expense ratio of 0.0945 percent. State Street Global Advisors is one of the original ETF managers, with 20 years' experience.
Predicting which of these ETFs will perform best over the next several years is impossible, which is why some investors buy all three. This strategy lets them spread their risk and earn a combined average rate of return.
Michael MacLean is the owner/proprietor of MACLEAN & Co. Financial Planning in Port Huron, Mich. He has more than 20 years of experience, including positions as a trader and financial adviser. He earned his MBA at Kettering University and currently holds the MFP® Master Financial Planner™ designation.