Choosing the best S&P 500 index fund for dollar cost averaging (DCA) can significantly impact your long-term returns. While all S&P 500 funds track the same index, differences in expense ratios, tracking error, and dividend reinvestment can compound into thousands of dollars over a 20-30 year investment horizon. In this comprehensive guide, we'll compare the top low-cost index funds and help you determine which one is ideal for your DCA strategy.
Quick Summary: Best S&P 500 Funds for DCA
- Best Overall for ETF DCA: VOO or IVV (0.03% expense ratio)
- Lowest Cost ETF: SPLG (0.02% expense ratio)
- Best Mutual Fund: FXAIX (0.015% expense ratio, $0 minimum)
- Best for Liquidity/Options: SPY (highest volume)
Complete S&P 500 Index Fund Comparison Table
Here's a detailed comparison of the best S&P 500 index funds available to individual investors:
| Fund | Expense Ratio | AUM | Tracking Error | Dividend Yield |
|---|---|---|---|---|
| VOO Vanguard S&P 500 ETF | 0.03% | $450B | 0.01% | 1.4% |
| SPY SPDR S&P 500 ETF Trust | 0.0945% | $550B | 0.02% | 1.3% |
| IVV iShares Core S&P 500 ETF | 0.03% | $400B | 0.01% | 1.4% |
| SPLG SPDR Portfolio S&P 500 ETF | 0.02% | $35B | 0.02% | 1.4% |
| FXAIX Fidelity 500 Index Fund | 0.015% | $500B | 0.01% | 1.4% |
| SWPPX Schwab S&P 500 Index Fund | 0.02% | $85B | 0.01% | 1.4% |
Why Expense Ratios Matter for DCA
When you're dollar cost averaging, you're making regular investments over many years. This means expense ratios compound against you with every contribution. Let's look at the math:
Example: $500/month DCA over 30 years (7% annual return)
- FXAIX (0.015%): $566,400 → loses $2,549 to fees
- VOO (0.03%): $566,400 → loses $5,097 to fees
- SPY (0.0945%): $566,400 → loses $16,055 to fees
The difference between SPY and VOO over 30 years? $10,958 in your pocket just by choosing a lower-cost fund.
This is why choosing a low cost index fund is critical for long-term DCA investors. Every basis point matters when compounded over decades.
VOO vs SPY vs IVV: Head-to-Head Comparison
The three most popular S&P 500 ETFs are Vanguard's VOO, State Street's SPY, and BlackRock's IVV. Here's how they compare for dollar cost averaging investors:
VOO (Vanguard S&P 500 ETF)
VOO is often considered the best S&P 500 index fund for long-term investors. Vanguard pioneered index investing, and VOO reflects their commitment to low costs. With a 0.03% expense ratio, it's one of the cheapest ways to invest in the S&P 500.
- Pros: Very low expense ratio, Vanguard's investor-first philosophy, excellent tracking
- Cons: Lower trading volume than SPY (rarely matters for DCA)
- Best for: Long-term DCA investors, buy-and-hold strategies
SPY (SPDR S&P 500 ETF Trust)
SPY was the first S&P 500 ETF, launched in 1993. It remains the most liquid ETF in the world, making it popular with traders. However, its higher expense ratio (0.0945%) makes it less ideal for long-term DCA.
- Pros: Highest liquidity, tightest spreads, best options market
- Cons: 3x higher expense ratio than VOO/IVV
- Best for: Active traders, options strategies, NOT long-term DCA
IVV (iShares Core S&P 500 ETF)
IVV from BlackRock matches VOO's 0.03% expense ratio and offers similar performance. The choice between VOO and IVV often comes down to which brokerage you use and personal preference.
- Pros: Same low cost as VOO, BlackRock's scale and expertise
- Cons: Essentially identical to VOO
- Best for: iShares/BlackRock loyalists, diversifying ETF providers
The Best Low-Cost Alternative: SPLG
State Street's SPLG (SPDR Portfolio S&P 500 ETF) is the lowest-cost S&P 500 ETF at just 0.02%. It's essentially State Street's response to VOO and IVV, offering the same S&P 500 exposure at an even lower cost.
For pure DCA investors focused on minimizing costs, SPLG is an excellent choice. The fund has grown to over $35 billion in assets, providing ample liquidity for retail investors.
Best S&P 500 Mutual Funds for DCA
If you prefer mutual funds over ETFs (perhaps for automatic investment features or fractional share investing), these are your best options:
FXAIX (Fidelity 500 Index Fund)
FXAIX has the lowest expense ratio of any S&P 500 fund at just 0.015%. With no minimum investment requirement, it's perfect for investors starting their DCA journey with smaller amounts.
- Expense Ratio: 0.015% (lowest available)
- Minimum Investment: $0
- Best Feature: Automatic investment with fractional shares
SWPPX (Schwab S&P 500 Index Fund)
Schwab's SWPPX offers a 0.02% expense ratio with no minimum investment. It's an excellent choice for Schwab customers who want seamless automatic investing.
ETF vs Mutual Fund for DCA: Which is Better?
For dollar cost averaging, both ETFs and mutual funds work well. Here's how to choose:
Choose ETFs (VOO, IVV, SPLG) if:
- ✓ You want intraday trading flexibility
- ✓ Your broker offers commission-free ETFs
- ✓ You invest lump sums periodically
- ✓ You want more control over execution price
Choose Mutual Funds (FXAIX, SWPPX) if:
- ✓ You want automatic recurring investments
- ✓ You invest specific dollar amounts
- ✓ You want the absolute lowest costs
- ✓ You prefer simplicity over flexibility
How to Start DCA with S&P 500 Index Funds
Starting a dollar cost averaging strategy with S&P 500 index funds is straightforward:
- 1. Choose your fund: Based on this comparison, select VOO, IVV, SPLG (ETFs) or FXAIX (mutual fund) for the lowest costs.
- 2. Set your investment amount: Decide how much you'll invest each period. Use our S&P 500 DCA Calculator to see potential returns.
- 3. Choose your frequency: Monthly is most common, but weekly or bi-weekly also works well.
- 4. Automate if possible: Set up automatic investments to remove emotion from the process.
- 5. Stay consistent: The key to DCA success is consistency through market ups and downs.
Historical DCA Performance: S&P 500
Dollar cost averaging into the S&P 500 has historically been an excellent wealth-building strategy. Here's what $500/month invested in the S&P 500 would have grown to over various periods:
| Time Period | Total Invested | Portfolio Value | Total Return |
|---|---|---|---|
| 10 Years (2014-2024) | $60,000 | $105,000 | +75% |
| 20 Years (2004-2024) | $120,000 | $320,000 | +167% |
| 30 Years (1994-2024) | $180,000 | $870,000 | +383% |
Want to see how your specific DCA plan would perform? Try our S&P 500 DCA Calculator with customizable amounts and time periods.
Common Questions About S&P 500 Index Funds
Is VOO better than SPY for long-term investing?
Yes, for long-term DCA investors, VOO is generally better than SPY due to its lower expense ratio (0.03% vs 0.0945%). Over 30 years, this difference can save you over $10,000 on a $500/month investment.
Can I DCA with fractional shares of ETFs?
Many brokers now offer fractional shares for ETFs like VOO, IVV, and SPY. This makes it easy to invest exact dollar amounts rather than having to buy whole shares.
Should I choose VOO or IVV?
VOO and IVV are nearly identical in terms of expense ratio (0.03%) and performance. Choose based on your broker's offerings or personal preference. There's no wrong choice between them.
What about dividend reinvestment?
All major S&P 500 index funds pay quarterly dividends (around 1.3-1.4% yield). Set up automatic dividend reinvestment (DRIP) to maximize the benefits of compounding with your DCA strategy.
Is the S&P 500 enough diversification?
The S&P 500 includes 500 large-cap US companies across all sectors. While it provides excellent diversification within US large-caps, some investors add international stocks and bonds for additional diversification.
When to Consider Alternatives
While S&P 500 index funds are excellent core holdings, consider these alternatives for specific situations:
- Total Stock Market (VTI, ITOT): Adds small and mid-cap exposure alongside large-caps
- Total World (VT): Includes international stocks for global diversification
- Target Date Funds: Automatically adjust allocation as you approach retirement
That said, for pure US large-cap exposure, the S&P 500 remains the gold standard and an excellent choice for dollar cost averaging.
Our Recommendation
For Most DCA Investors:
Choose VOO (Vanguard S&P 500 ETF) or FXAIX (Fidelity 500 Index Fund) depending on whether you prefer ETFs or mutual funds. Both offer rock-bottom costs and excellent tracking.
If you want the absolute lowest expense ratio and don't mind a smaller fund, consider SPLG at 0.02% or FXAIX at 0.015%.
Start Your DCA Journey Today
Ready to begin dollar cost averaging into the S&P 500? Use our free tools to plan your strategy:
Key Takeaways
- VOO and IVV offer the best balance of low cost (0.03%) and liquidity for ETF investors
- FXAIX has the lowest expense ratio (0.015%) for mutual fund investors
- SPY is best for traders, not long-term DCA due to higher fees
- Expense ratio differences compound significantly over 20-30 year DCA horizons
- Set up automatic investments and dividend reinvestment for best results