Best S&P 500 Index Funds for 2025 – ETFs vs. Mutual Funds

Introduction:

S&P 500 index funds are a key part of many investors' portfolios. These funds track the performance of the S&P 500, which includes 500 of the largest companies in the U.S. By investing in an S&P 500 index fund, you are essentially investing in a broad range of top-performing companies, such as Apple, Microsoft, and Amazon.

In 2024, the S&P 500 returned 25%, including dividends. While 2025 has had a mixed start, the index has still gained over 22% in the past 12 months (as of early February).

But with so many S&P 500 index funds available, which one should you choose? This guide will help you compare exchange-traded funds (ETFs) and mutual funds that track the S&P 500. While these funds may seem similar, they have key differences in fees, structure, and investment strategies that can impact your returns.

Below, we break down some of the best S&P 500 index ETFs and mutual funds, their performance, and what makes each unique.

Summary

Comparison of Top S&P 500 Index Funds
1. SPDR S&P 500 ETF Trust (SPY)
2. iShares Core S&P 500 ETF (IVV)
3. Vanguard S&P 500 ETF (VOO)
4. Fidelity 500 Index Fund (FXAIX) – Mutual Fund
5. Schwab S&P 500 Index Fund (SWPPX) – Mutual Fund

Comparison of Top S&P 500 Index Funds

1. SPDR S&P 500 ETF Trust (SPY)

Overview:

• The largest S&P 500 ETF with $626.7 billion in total assets.
• Extremely high trading volume (48.3 million shares per day on average).
• Expense ratio of 0.095%, which is higher than some competitors.

Key Features:

• Highly Liquid: Since SPY has high trading volume, buying and selling shares is easy, and the price stays close to the actual value of the index.
• 24-Hour Trading: Some platforms allow trading outside of regular market hours, which means investors can react to news events quickly.
• Options Trading: SPY has a very active options market, making it useful for investors who want to generate income using covered calls or hedging strategies.

Who Should Invest?

• Investors who need high liquidity and flexibility.
• Those interested in options trading.

People who want the ability to trade outside normal hours.

2. iShares Core S&P 500 ETF (IVV)

Overview:

• Managed by BlackRock.
• Lower expense ratio (0.03%) compared to SPY.
• Uses a different fund structure (open-ended fund) than SPY’s unit investment trust.

Key Features:

• Better Dividend Reinvestment: Unlike SPY, IVV automatically reinvests dividends instead of holding them as cash, leading to better compounding over time.
• Slightly Higher Return: As of Feb. 7, IVV has returned 2.55% year-to-date, slightly higher than SPY’s 2.54%.
• Lower Costs: The low expense ratio means investors keep more of their returns.

Who Should Invest?

• Long-term investors who want lower costs and better compounding.

People who don’t need to trade options.

3. Vanguard S&P 500 ETF (VOO)

Overview:

• Uses a full replication strategy, meaning it holds all 500 stocks in the S&P 500 at their exact weights.
• Expense ratio of 0.03%, similar to IVV.

Key Features:

• Lower Tracking Error: Because VOO holds every stock in the index, it closely matches the S&P 500’s performance.
• More Accurate Index Matching: Some ETFs use an optimized sampling method to track the S&P 500, which can lead to small performance differences. VOO avoids this issue by fully replicating the index.
• Strong Historical Performance: Returned 25% in 2024, closely matching the S&P 500’s actual performance.

Who Should Invest?

• Investors who want precise tracking of the S&P 500.

Those looking for a low-cost, long-term investment.

4. Fidelity 500 Index Fund (FXAIX) – Mutual Fund

Overview:

• A mutual fund instead of an ETF.
• Lowest expense ratio (0.015%) on this list.
• No minimum investment required.

Key Features:

• Best for Retirement Accounts: Since it’s a mutual fund, it’s ideal for 401(k) plans and IRAs, where daily trading isn’t needed.
• Long-Term Focus: No intraday trading or options trading, making it great for buy-and-hold investors.
• High Returns: Returned 25% in 2024, slightly outperforming ETFs on this list.

Who Should Invest?

• Retirement investors who want a low-cost fund with strong performance.

People who don’t need to trade daily.

5. Schwab S&P 500 Index Fund (SWPPX) – Mutual Fund

Overview:

• Another low-cost mutual fund with an expense ratio of 0.02%.
• No minimum investment.

Key Features:

• Good for Schwab Customers: Investors with Schwab accounts can invest in SWPPX without extra fees.
• Tax-Advantaged Accounts: Since it’s a mutual fund, it’s best for tax-advantaged accounts (401(k), IRA, etc.).
• Similar Returns to FXAIX: Also returned 25% in 2024, matching FXAIX.

Who Should Invest?

• Investors who already have Schwab accounts.

People looking for a low-cost mutual fund for retirement savings.

Frequently Asked Questions 

Q.1. What is an S&P 500 Index Fund?

A.1. An S&P 500 index fund is a fund that tracks the S&P 500 index, which includes the 500 largest publicly traded companies in the U.S.

Q.2. What is the Difference Between ETFs and Mutual Funds?

A.2. ETFs trade like stocks, meaning you can buy and sell them throughout the day.

Mutual funds only trade at the end of the day and don’t allow options trading.

Q.3. Which S&P 500 Fund Has the Lowest Fees?

A.3. The Fidelity 500 Index Fund (FXAIX) has the lowest expense ratio (0.015%).

Q.4. Which Fund is Best for Retirement?

A.4. Both FXAIX and SWPPX are great for 401(k) and IRA accounts because of their low costs and long-term focus.

Conclusion

S&P 500 index funds are a great way to invest in the U.S. stock market. Whether you choose an ETF (SPY, IVV, VOO) or a mutual fund (FXAIX, SWPPX) depends on your investment goals.

For trading flexibility, go with an ETF.

For low-cost, long-term investing, mutual funds like FXAIX are ideal.

By choosing the right fund, you can maximize your returns while keeping costs low. Happy investing! 🚀

Important Note: Please Read Before You Invest

We're just sharing some helpful tips, but remember, investing comes with risks. We can't promise that these tips will always work or that you'll make money. Everyone's financial situation is different, so it's smart to do your research or talk to a financial advisor before you invest. Using these tips, you agree that you're responsible for your investment decisions and results.