The S&P 500® Index
By: Ted Black, CFP®
Summer 2026 (Vol. 44, No. 2)
Though it can vary based upon age, level of risk tolerance, goals and personal preferences, almost all investors with a long-term outlook have some portion of their portfolio allocated to the stock market. The S&P 500® Index is widely viewed as the barometer for the performance of large-cap U.S. stocks, and the measuring stick against which the performance of actively managed stock funds are measured.
Investors can participate in the performance of the S&P 500® Index by investing in an S&P 500® index fund. This article doesn't single out any fund as almost all the large mutual fund companies and major brokerages such as Schwab, Fidelity and Vanguard offer an S&P 500® index mutual fund and/or exchange traded fund (ETF).
The main benefits of investing in an S&P 500® index fund include broad diversification, low costs, strong long-term historical performance, simplicity, and a high likelihood of outperforming most actively managed funds over time. This is why for many investors, a position in such a fund acts as a core long-term holding.
Here are some of the potential benefits of investing in an S&P 500® index fund:
1. Broad Diversification
An S&P 500® index fund gives you exposure to approximately 500 of the largest U.S. companies across major sectors (technology, healthcare, financials, consumer goods, etc.). This represents roughly 80% of the U.S. stock market's total capitalization.
- Spreading risk across hundreds of companies reduces the impact of any single stock or sector failing.
- It provides a balanced slice of the U.S. economy without needing research and select individual stocks or sectors.
2. Low Costs (Expense Ratios)
Index funds are passively managed, so they have very low fees compared to actively managed funds.
- Many popular S&P 500® funds have expense ratios as low as +/- 0.02%. This compares very favorably to most actively managed stock funds.
3. Strong Historical Performance
The S&P 500® has delivered solid long-term returns:
- Strong average annual returns since its inception in 1957, though this varies by period.
4. Outperforms Most Active Managers Over Time
Most actively managed funds fail to beat the S&P 500® after fees, especially over longer horizons. This is due to higher fees, trading costs, and the difficulty of consistently beating a diversified portfolio of industry leading companies.
5. Simplicity and Convenience
- Set it and forget it: No need for stock research, market timing, or frequent trading.
- Highly liquid: Easy to buy/sell shares in ETFs or mutual funds.
- Tax efficiency: Lower turnover means fewer capital gains distributions in taxable accounts.
6. Transparency and Consistency
You know exactly what you're getting - the performance closely tracks the S&P 500® minus a tiny fee. No manager style drift or surprises.
Given the strong long-term performance as well as the other potential benefits listed above, it's no surprise that these types of funds are very popular with investors. However, it's important to keep in mind that as far as we know, there's no 'perfect' investment.
These funds essentially track the market, and as we all know the market doesn't always go up. During market corrections and bear markets, these funds will suffer right along with the overall market.
This makes it vitally important for each individual investor to do their best to determine their overall tolerance for risk and fluctuations in account value and allocate an appropriate portion of their portfolio to the stock market.
If you're interested in this fund, or would like a portfolio review to determine if this fund might be an appropriate addition to your portfolio, please call Ted Black, CFP® at 888-878-0001, extension 3.
Advisory services offered through Royal Palm Investment Advisors, Inc., a Registered Investment Advisor.