Week 7 Day 5: How to Actually Buy the S&P 500

Three of the most popular ways to own the S&P 500: VOO (Vanguard, 0.03% fee), SPY (State Street, 0.09% fee), or FXAIX (Fidelity, 0.015% fee). You buy one fund and instantly own 500 companies. The annual fee on FXAIX is $1.50 per $10,000 invested. That is as close to free as investing gets.

Here is a step-by-step: (1) Open a brokerage account at Fidelity, Vanguard, or Schwab (free, takes 15 minutes online). (2) Transfer money from your bank. (3) Search for VOO, SPY, IVV, or FXAIX. (4) Buy shares. (5) Turn on dividend reinvestment. Done. If your employer offers a 401(k), look for an S&P 500 index fund or 'large cap index' option in your plan menu -- it is almost always there. The expense ratio should be under 0.10%. If the only options are actively managed funds with 0.5%+ fees, ask your HR department about adding an index option. One distinction: VOO, SPY, and IVV are ETFs (exchange-traded funds) that you buy like stocks. FXAIX and VFIAX are mutual funds that you buy in dollar amounts. For practical purposes, the difference is negligible. Pick whichever your brokerage makes easiest.

The S&P 500 index fund market is dominated by three providers: Vanguard (VOO/VFIAX), BlackRock/iShares (IVV), and State Street (SPY). Combined assets under management exceed $2 trillion. These funds achieve near-perfect tracking of the index through full replication (holding all 500 stocks in proportion) with tracking errors typically under 0.05% annually. SPY, the oldest (launched 1993), is technically structured as a Unit Investment Trust, which prevents it from reinvesting dividends between distribution dates and from lending securities -- minor structural disadvantages that explain its slightly higher expense ratio. VOO and IVV are structured as ETFs within a traditional open-end fund structure, allowing more flexibility. For taxable accounts, ETFs offer a slight tax advantage over mutual funds due to the in-kind creation/redemption mechanism that avoids triggering capital gains distributions. For 401(k) accounts, mutual fund versions are the norm.