For most people, S&P 500 index funds and ETFs are functionally the same, and you’ll want to choose whichever fund, whether index or ETF, has the lowest cost and financial minimums that make sense for your investment goals.
Read more: ETF vs. Index Fund
That said, here are a handful of differences to keep in mind:
- ETFs are generally more liquid, trading throughout the day like stocks on the exchange; you can only buy or sell index funds at one point in the day, after other trading has ended. If you’re a long-term, buy-and-hold investor, this distinction is likely not relevant.
- Management fees on ETFs can be lower than on index funds tracking the same index, but don’t assume index funds are necessarily the pricier option.
- ETF buy-ins are often much lower than minimum investments required by mutual funds.
- However, fewer brokerages allow you to purchase fractional shares of ETFs, which may make it more difficult for you to buy additional shares.
- You’re much more likely to find only index funds in an employer-sponsored retirement plan, like a 401(k).
- ETFs have a slightly better setup for managing taxes, but this is less important to consider for index-based funds that aren’t engaging in frequent trading and for funds that you’re holding in tax-advantaged retirement accounts.
Regardless of whether you pick an S&P 500 index fund or ETF, know that these funds remain a solid tool for you to access large cap stocks for your portfolio without having to vet individual stocks. With traditionally low management fees and a wide array of investment minimums, you’ll have plenty of options that align with your assets and investment strategy.
The author(s) held no positions in the securities discussed in the post at the original time of publication.