The Top S&P 500 Index Funds -- I Own Them All (Almost)

Here's a piece from USA Today that lists the top three S&P 500 index funds. Their list:

• Vanguard 500 (VFINX) is the granddaddy of S&P 500 investments. It's one of the largest mutual funds in the world and it was the first index fund to track the S&P 500. It's a great option for many investors, given its low 0.18% expense ratio.

• Fidelity Spartan 500 (FSMKX) is Fidelity's answer to Vanguard's 500. While Fidelity isn't known for its index funds, Fidelity Spartan 500 is compelling since it has an expense ratio of 0.1%, which is even lower than Vanguard's.

• E*Trade S&P 500 Index (ETSPX) is offered by online discount brokerage E*Trade. The 0.09% expense ratio is a tad lower than Fidelity's, which is interesting, but probably not enough to get you to switch. But if you have an E*Trade brokerage account you may lean toward this fund because it can be bought without a commission.

I own all three of these (if you give me a "close enough" on Fidelity) as follows:

1. Most of you know that the bulk of my investments are with Vanguard. I have a taxable account with them as well as a couple IRA rollovers (one from me and one from my wife.) All of these have shares on Vanguard Index 500 in them.

2. My 401k at work is with Fidelity and I investment into funds very similar to FSMKX. I put my money into Fidelity Spartan Extended Market Index (FSEMX) and Fidelity Spartan Total Market Index (FSTMX) -- two funds that are broader than just the S7&P 500.

3. My kids have Coverdell college savings accounts with Etrade that I have invested in ETSPX. Costs are VERY low here, and the fund has done well for us over the past few years.

Comments

[Matt]

I have Fidelity at work too. I use the Spartan 500, Spartan Extended Market, and Spartan International.

I don't bother with the Spartan Total Market because Total = Extended + 500 * 4 (approximately), so there would be overlap with what I've already got.

There are two schools of thought on whether to use total market, minimizing turnover by staying market weighted, OR split it out into the 500 and the extended market (which tracks the Wilshire 4500). William J. Bernstein calls people who prefer each approach Lumpers and Splitters respectively.

I'm a splitter because it's a sheltered account, so the downside to turnover isn't such an issue, plus I like to give it a smaller-cap tilt, by going 60% 500/40% extended. In a taxable account I would definitely be a lumper though.

[mikey]

Expenses are important, but remember to pay attention to when you get in and when you get out. I find SPY easy to buy/sell. I like EFA now, due to international exposure. Mikey, Certified Networked Advisor (CNA)

[Ray]

Hi, I have a small question:

Earlier in the year, I started a ROTH IRA Vanguard account, with the STAR fund because it is the only one with a minimum opening of $1000. I've been making contributions twice a month. However, I recently decided to max out the remaining ROTH contributions for the year, which is about 60% remaining. I want to purchase VFINX, but it has a minimum starting of $3000, and my remaining contribution allowance of the ROTH yearly limit is now less than that.

Any suggestions on how I can purchase a different fund for my ROTH IRA when my remaining contribution allowance is less than the minimum starting requirement for the fund? (I am not familiar with selling, and am wary of any early withdrawal penalties?)

Thanks in advance, and keep up the good posts.

Sincerely,
Ray from Brooklyn

[garyatk]

Ray, It sounds as if you are new to investing. Welcome to the investing world! You made a great choice with using Vanguard! If I were you, I would keep using the Star fund until your total account value is more than $3000. Then I would look into the Target Retirement Fund that fits your age group. This will give you total diversifacation across the entire market. Both stocks and bonds as appropriate to your age group. As your account and knowledge grows, then I would branch out into different funds. Just remember that the key to success is diversifacation and steady investing over the long haul! I hope this helps!