TradingKey - In 2025, the S&P 500 Index rose 16%, following two consecutive years of gains exceeding 20% annually. Faced with this remarkable sustained growth, many investors are asking, "How can I get on board this wealth-building express train?"
This practical guide will break down the S&P 500's authentic performance, explain why it deserves a place in your portfolio, and show you exactly how to select the most suitable S&P 500 Index fund for your needs in 2026 – all explained in clear, straightforward terms.
What is the S&P 500 index?
Think of the S&P 500 Index as the primary barometer for the U.S. stock market and a vital "health check" for the American economy. It tracks 500 of the most prominent publicly traded corporations in the United States, specifically chosen based on their liquidity, size, and industry leadership. It actually contains 503 stocks due to companies with multiple share classes like Alphabet.
Since Standard & Poor's launched it in 1957, the index has provided a panoramic view of overall market trends.
The S&P 500 Index isn't just a random list; it includes a diverse array of sectors, including technology, healthcare, finance, and consumer staples. The selection process is famously strict. Beyond just having a massive market presence, companies must maintain high financial stability and a minimum market cap of $14.6 billion to qualify. This ensures the index remains a true representation of the broader U.S. economic landscape.
Because it is market-capitalization-weighted, the largest companies have the most significant influence on its movement.
The math behind it is straightforward:
Market Capitalization = Total Outstanding Shares × Current Share Price
Influence and Significance
The S&P 500 Index serves as a critical benchmark for both institutional and individual investors, often representing the "market" in financial discussions. Its performance is closely watched as an indicator of the economy's health.
Fund managers frequently use the index as a benchmark to gauge their portfolios' performance, and many investment products, like S&P 500 Index ETFs, are directly linked to it. As a result, the S&P 500 Index not only influences investment strategies but also plays a pivotal role in the broader economic narrative.
Why Use the S&P 500 Index?
The S&P 500 Index functions as a primary foundation for global finance, providing a clear window into the U.S. economy. Investors lean on this index for many reasons, mainly due to its massive market coverage, historical success, and practical benefits.
The index includes 500 of the biggest public companies in America, representing about 80% of the total market value. This broad reach means investors get a piece of every major industry, from tech and healthcare to finance.
Historically, the S&P 500 Index has seen average yearly returns of roughly 10%. Even Warren Buffett famously advises that a low-cost S&P 500 index fund is the best long-term bet for most people.
Simultaneously, by picking an S&P 500 Index ETF, you can achieve instant diversification and lower the risk that comes with individual stock volatility. These S&P 500 Index ETF options provide high liquidity and very low costs. They are simple to manage and highly transparent, making them an excellent choice for both new investors and seasoned professionals looking for a reliable core holding.
S&P 500 Index vs. Other Major Stock Indices
Comparing the S&P 500 Index to other major benchmarks reveals clear structural differences.
The Dow Jones Industrial Average (DJIA) tracks only 30 companies and uses price-weighting. In that system, a high stock price gives a company more influence, which can sometimes misrepresent true market movement.
Meanwhile, the Nasdaq Composite focuses on technology and biotechnology. This tech-heavy style leads to more volatility but offers the chance for rapid gains.
Historically, the S&P 500 has been praised for its reliable growth and stability. It often beats the DJIA over long periods because of its broader foundation. While the Nasdaq might offer bigger returns, it also involves more risk.
How to Invest in the S&P 500 Index?
Investors can access the S&P 500 Index through various methods matching different financial goals. Many choose S&P 500 Index ETF vehicles like SPY or SPLG.
These exchange-traded funds replicate the S&P 500 Index performance by holding matching stocks. S&P 500 Index ETF options provide affordable market exposure without high active management fees.
Mutual funds tracking the S&P 500 offer another path. These funds might carry higher costs than ETFs but include professional oversight and automatic dividend reinvestment features. Compare expense ratios, tax consequences, and trading flexibility before selecting your S&P 500 investment approach.
Key Considerations and Strategies
When investing in the S&P 500 Index, it's important to factor in your investment horizon, risk tolerance, and financial objectives.
Dollar-cost averaging is a strategy that can help mitigate market volatility by spreading the investment over time, rather than making a lump sum investment. This approach reduces the impact of market fluctuations and can enhance long-term returns.
Moreover, it's advisable to periodically review and rebalance your investment portfolio to ensure alignment with your evolving financial goals. Staying informed about market trends and economic indicators can also aid in making informed decisions.
Can You Really Become a Millionaire with an S&P 500 ETF?
Building wealth through an S&P 500 Index ETF is absolutely possible thanks to compounding returns. When you invest in an S&P 500 ETF, you gain exposure to America's largest companies and their growth story. Your money works harder when dividends get reinvested automatically, creating a snowball effect over time. Small, regular contributions can grow into significant sums when given enough years.
Market ups and downs are normal and sometimes scary. The S&P 500 Index has always recovered from crashes throughout history. Staying invested during tough times is crucial. Those who panic and sell during downturns miss the best recovery days.
A patient, long-term approach with your S&P 500 Index ETF investment dramatically increases millionaire potential.
Which S&P 500 ETF Is the Best?
When determining which S&P 500 ETF is the best fit for your portfolio, it's essential to consider several factors, such as liquidity, expense ratios, and tracking performance.
Liquidity and Trading Volume
High trading volumes generally indicate better liquidity, which can result in tighter bid-ask spreads and lower transaction costs.
The SPDR S&P 500 ETF Trust (SPY) is a prime example, known for its high liquidity and minimal trading costs, making it a favorite among day traders and institutional investors alike.
Expense Ratios
A lower expense ratio means that more of your investment is working for you. For instance, the iShares Core S&P 500 ETF (IVV) and the Vanguard S&P 500 ETF (VOO) both offer competitive expense ratios, typically lower than that of SPY, making them attractive options for long-term investors focused on cost efficiency.
Performance and Tracking Error
Tracking error refers to how closely an ETF follows its benchmark index. A lower tracking error indicates that the ETF effectively replicates the performance of the S&P 500 Index. Both VOO and IVV are commendable for their low tracking errors, offering reliable performance that mirrors the index.
SPY vs. SPLG: Two Ways to Own the S&P 500 Index
Owning the S&P 500 Index can be achieved through various exchange-traded funds (ETFs), with SPY and SPLG being two prominent options.
The SPDR S&P 500 ETF Trust (SPY) is the first ETF ever launched and is widely recognized for its liquidity and size.
On the other hand, the SPDR Portfolio S&P 500 ETF (SPLG) offers a cost-effective alternative for investors seeking exposure to the same index.
While both ETFs aim to replicate the performance of the S&P 500 Index, they differ in expense ratios, trading volumes, and investor appeal, making them suitable for different types of portfolios.
One of the primary differences between SPY and SPLG lies in their expense ratios. SPY has an expense ratio of 0.09%, which is relatively low but can add up over time, especially for long-term investors.
Conversely, SPLG boasts a lower expense ratio of 0.03%, making it an attractive choice for cost-conscious investors aiming to maximize their returns by minimizing fees. While the cost savings between the two might seem minor, over several years, these differences can significantly impact an investment's overall return.
SPY is renowned for its high liquidity and trading volume, often being one of the most heavily traded ETFs in the world. This feature makes it highly attractive for active traders who require quick entry and exit points without significant price impact.
SPLG, although not as liquid as SPY, offers sufficient liquidity for most retail investors. For those implementing long-term strategies, SPLG's slightly lesser liquidity is often not a deterrent, given its cost advantages.
Should You Buy the Vanguard S&P 500 ETF at Record Highs?
The S&P 500 Index reached unprecedented heights to close 2025, driven by surging artificial intelligence adoption and robust semiconductor demand.
Many investors now wonder: is this the right time to invest in the Vanguard S&P 500 ETF (VOO)?
This S&P 500 Index ETF tracks 500 leading companies weighted by market size. Technology dominates at 36% of the index, alongside financial giants like JPMorgan and Berkshire Hathaway. Consumer leaders including Amazon and Tesla round out the holdings, with healthcare, energy, and real estate completing this comprehensive economic snapshot.
Cost efficiency makes VOO particularly compelling. Its rock-bottom 0.03% expense ratio dramatically outperforms many S&P 500 Index competitors charging up to 0.73%. These seemingly small fee differences compound over decades, preserving thousands in potential profits.
Market timing creates understandable anxiety. Record highs often trigger fears of imminent corrections.
Long-term investors should view current highs differently. VOO's simplicity, exceptional diversification, and ultra-low costs make it ideal for wealth building regardless of entry point.
The S&P 500 Index has delivered consistent growth over decades despite short-term volatility. For patient investors committed to the long game, VOO remains one of the most efficient vehicles to capture America's economic progress—even when markets reach new peaks.
