It’s possible that your employer-sponsored retirement plan or online brokerage only offers index funds or ETFs. ETFs are available for purchase at just the per-share price, which can be a sliver of an index fund’s minimum investment.

Many index funds have investment minimums, sometimes in excess of $1,000-although there are more and more index funds that offer $0 minimums, especially in workplace retirement funds like a 401(k). This is one reason that day traders and institutional investors prefer ETFs. Index funds, meanwhile, can only buy and sell their shares once a day. You can trade ETFs any time the market is open and can access funds on a standard settlement schedule. If you need to take money out of your investment portfolio on a regular basis, an ETF might offer better liquidity than an index fund. Depending on your investing strategy, there are times where one or the other might be more suited to your portfolio.

The difference between ETFs and index funds comes down to a very short list of features, including liquidity, minimum purchase requirements and availability. 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. 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. Dividend Yieldĭividends are a key benefit of investing in the large-cap stocks that comprise the S&P 500. This especially if you pursue dollar cost averaging as not all brokerages currently allow clients to buy fractional shares of ETFs. 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 means you can start investing in S&P 500 ETFs for just the cost of one share. Share Price and Investment MinimumsĪ 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. By looking back at the performance history of older funds, you can have more confidence about how a fund might perform in future cycles. 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. The newer the ETF, the shorter the performance track record. 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. Funds with higher average trading volumes are more liquid, and ones with lower trading volumes are less. 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. Hands-off, buy-and-hold retirement investors don’t need to worry terribly much about ETF liquidity. In cases where expense ratios are somewhat higher, check to see if the fund’s performance justifies the higher management fee. Taken together, S&P 500 expense ratios, or the fees charged by funds to cover their operating expenses, should be negligible. In addition, S&P 500 ETFs are among the largest ETFs by assets with some of the biggest trading volumes in the industry. Expense Ratiosīoth passively managed and active ETFs exist-but S&P 500 ETFs are passively managed by definition. Here are the key points to compare between potential S&P 500 ETFs before you invest.

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