Here are the key points to compare between potential S&P 500 ETFs before investing.
There are both passively and actively managed ETFs, but S&P 500 ETFs are passively managed by definition. In addition, the S&P 500 ETFs are among the largest ETFs in terms of assets with some of the highest trading volumes in the industry. Taken together, the S&P 500’s expense ratios, or the fees charged by funds to cover their operating expenses, should be negligible. In cases where the expense ratios are a bit higher, check whether the fund’s performance justifies the higher management fees.
Non-interventionist retirement investors, who buy and hold, don’t have to worry much about ETF liquidity. But if you’re more of an active investor who trades in a taxable brokerage account, it’s worth understanding how the liquidity of an ETF could impact your strategy. Funds with higher average trading volumes are more liquid, and those with lower trading volumes are less liquid. Choosing a more liquid S&P 500 fund allows you to quickly buy and sell stocks without having to forgo returns.
The more recent the ETF, the shorter the performance history. Why is this important for S&P 500 ETFs? Older funds have gone through more economic cycles and have been stressed by a greater variety of market conditions. By looking at the performance history of older funds, you can gain more confidence in how a fund might perform in future cycles.
Share price and investment minimums
The main difference between ETFs and index funds is that ETFs usually don’t have a minimum to start investing and their stock prices are fractions of the minimum investments required by many index funds. This means that you can start investing in S&P 500 ETFs for the price of one share only.
That said, S&P 500 ETF stock prices vary widely, so new investors may want to make sure that the prices of their ETFs of choice match how they plan to invest. This, especially if you are chasing cost averaging in dollars, as not all brokerage firms currently allow clients to buy fractions of ETF shares.
Dividends are a key benefit of investing in the large cap stocks that make up the S&P 500. The dividend yield of the S&P 500 ETFs is the percentage that the companies in the benchmark index pay out annually in dividends per dollar invested. in a fund. When choosing an S&P 500 ETF, make sure that its dividend yield is at least aligned with the best funds on this list, if not higher.
Read more: How to buy an S&P 500 ETF