What investment beats 90% of active fund managers in the long-run? What investment turned $10,000 into $1.1 million over the last 50 years? What investment does Warren Buffett want 90% of his wealth invested in after he’s gone?
If you guessed the S&P 500, you’re right!
Like Mr. Buffett, I’m a huge fan of investing in low-cost S&P 500 index funds to grow your wealth. It’s a bet on the future prosperity of America!
There are plenty of S&P 500 index funds to choose from, so how do we decide which one is best?
In this post I’m going to tell you what criteria I look for when choosing the best funds. Then I’m going to give you my picks for the 3 brokerages for which I am a customer – TD Ameritrade, Fidelity, and Etrade. This list has been updated for 2020 and there were no changes from 2019.
3 criteria for selecting the best s&P 500 index funds
Number 1: low fees
No Load, No Transactions Fees
When I purchase a fund, I want to make sure that my brokerage doesn’t charge me any fees for buying it. I also want to make sure that there are no fees for selling it. Usually your brokerage makes it easy to find funds that charge no load fees and no transaction fees.
The only reasonable fee to me is the early-redemption fee. This is a fee charged by the brokerage or the fund if you buy and sell the fund within a short time period, like 90 days or 180 days. Excessive buying and selling of mutual funds raises costs for the fund. So by discouraging excessive trading of mutual funds, they help keep the costs low for everyone.
gross and net expense ratios, 12-b1 fees
Some funds may also charge a 12-b1 fee, which is used to pay for their marketing. This is rare for an index fund and I would be very hesitant if a fund charged this.
Here’s a great article on The Motley Fool about gross and net expense ratios.
Here’s another great article on The Balance about mutual fund fees
Number 2: Does it actually invest in the S&P 500?
does the fund own 500 stocks or so?
It’s very reasonable for the fund to own between 480 and 520 stocks. I’d be concerned if it went outside this range.
what’s the portfolio turnover?
I just want to make sure that the fund that has less than 30% turnover.
do the charts match?
Number 3: low minimum investment requirements
Low initial investment minimums
Low Add-on Investment minimums
the best s&p 500 index funds on tdameritrade, fidelity, and etrade (updated JANUARY 14, 2020)
TIAA-CREF S&P 500 Index Fund Retirement Class
Fidelity® 500 Index Fund
SCHWAB® S&P 500 INDEX
I/we are long TRSPX and SWPPX.
I wrote this article myself and it expresses my own opinions. I’m not receiving compensation for it (other than from Wolves Of Investing), and I have no business relationship with any company whose stock is mentioned in this article.
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Donnie Nguyen is the founder and CEO of Wolves of Investing. He started investing in the stock market in the early 2000s. He follows the teachings of Peter Lynch, Warren Buffett, and other investing legends. When he's not investing or blogging, he loves spending time with his family traveling and experiencing the world.
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