Best Index Fund #1: SPDR S&P 500 ETF (SPY)
The SPDR S&P 500 ETF (SPY) is not just one of the best index funds to buy, but the first exchange-traded fund of all time. Oh, and it’s the biggest in assets at $178 billion. Put in context, the money invested in the SPY ETF is worth as much as Coca-Cola (KO), when measured by market cap. That’s pretty impressive considering the SPY ETF merely tracks the S&P 500 Index, America’s 500-stock large-cap benchmark — something you also can get by owning the Vanguard 500 Index Fund (VOO) and the iShares S&P 500 Index Fund (IVV). That’s even more impressive when you consider the SPY ETF is also the most expensive of the three, at 0.09% in expenses — or $9 annually for every $10,000 invested — vs. 0.07% for IVV and 0.05% for VOO. But that small difference isn’t enough to stop SPY from being one of the best index funds. The SPY ETF has seven years on both its competitors, and not only offers great liquidity on the ETF itself, but also its options. Plus, the most important reason the SPY ETF is one of the best index funds is because it is, in essence, “the market.” Yes, that same market that only about 10% to 15% of hedge funds and roughly 30% to 35% of actively managed domestic mutual funds manage to beat each year. So if you can’t beat it, own it. Right now, Apple (AAPL), Exxon Mobil (XOM) and Google (GOOG) are the S&P 500’s largest stocks, making them the top holdings of the market-cap-weighted SPY, as well as VOO and IVV. As a nice kicker, the SPY also yields roughly 1.8% in dividends.