Here are the key points to compare between potential S&P 500 ETFs before you invest.
Both passively managed and active ETFs exist—but most S&P 500 ETFs are passively managed by definition. In addition, S&P 500 ETFs are among the largest ETFs by assets with some of the biggest trading volumes in the industry.
Taken together, S&P 500 expense ratios, or the fees charged by funds to cover their operating expenses, are very low. In cases where expense ratios are higher, check to see if the fund’s performance justifies the higher management fee.
Hands-off, buy-and-hold retirement investors don’t need to worry terribly much about ETF liquidity. But if you’re more of an active investor trading in a taxable brokerage account, it’s worth understanding how an ETF’s liquidity could impact your strategy.
Funds with higher average trading volumes are more liquid, and ones with lower trading volumes are less. Choosing an S&P 500 fund that’s more liquid ensures you are able to promptly buy and sell shares without having to give up returns.
The newer the ETF, the shorter the performance track record. Why does that matter for S&P 500 ETFs? Older funds have been through more economic cycles and have been stress tested by wider varieties of market conditions.
By looking back at the performance history of older funds, you can have more confidence about how a fund might perform in future cycles.
Share Price and Investment Minimums
A chief difference between ETFs and index funds is that ETFs generally have no minimums to start investing, and their share prices are fractions of the investment minimums required by many index funds. This means you can start investing in S&P 500 ETFs for just the cost of one share.
That said, the share prices of S&P 500 ETFs vary widely, so new investors may want to ensure that the prices of their ETFs of choice aligns with how they plan to invest. This is especially true if you pursue dollar cost averaging as not all brokerages currently allow clients to buy fractional shares of ETFs.
Dividends are a key benefit of investing in the large-cap stocks that comprise the S&P 500. The dividend yield of S&P 500 ETFs represents the percentage the component companies of the benchmark index pay out annually in dividends per dollar you invest in a fund.
When choosing an S&P 500 ETF, make sure their dividend yield is at least aligned with the best funds on this list, if not higher.