Strategies for novice ETF investors: Explore 7 methods to initiate your exchange-traded fund investments
In the world of investing, Exchange-Traded Funds (ETFs) have gained significant popularity due to their passive management and low fees. One such type of ETF that has consistently delivered attractive returns is the S&P 500 ETF.
ETFs, which own various types of securities but usually just one type, either stocks or bonds, are considered index funds because they passively track a preset index. In the case of S&P 500 ETFs, they own all the stocks in the Standard & Poor's 500 stock index, which includes about 500 of the largest, most profitable American companies.
For beginners, the top S&P 500 ETFs are those with broad diversification, low expense ratios, and easy accessibility. Three of the most popular and highly recommended S&P 500 ETFs in 2025 include the SPDR S&P 500 ETF Trust (SPY), Vanguard S&P 500 ETF (VOO), and iShares Core S&P 500 ETF (IVV). These ETFs provide a simple way to invest in a diverse portfolio of large-cap U.S. stocks and typically deliver about 10% average annual returns over the long term.
The Vanguard S&P 500 ETF (VOO), for instance, is known for its very low expense ratio (about 0.03%) and broad exposure to 500 largest U.S. companies. Similarly, the iShares Core S&P 500 ETF (IVV) and SPDR S&P 500 ETF (SPY) have low costs and strong liquidity.
For those who prefer mutual funds, there are also very low-cost S&P 500 index mutual funds available. The Vanguard 500 Index Fund Admiral Shares (VFIAX) has an expense ratio of 0.04% but a $3,000 minimum investment. The Schwab S&P 500 Index Fund (SWPPX) has no minimum investment and a 0.02% expense ratio, while the Fidelity 500 Index Fund (FXAIX) has no minimum and an extremely low 0.015% expense ratio.
When choosing an S&P 500 ETF, it's essential to consider a fund with a low expense ratio (e.g., under 0.05%) to maximize net returns over time. Ease of purchase—no or low minimum investments—is also crucial. Additionally, look for broad market exposure to 500 top U.S. companies to minimize company-specific risk. Purchase through beginner-friendly brokers offering fractional shares and educational resources for a smooth investment experience.
Investing regularly in ETFs, a process called dollar-cost averaging, can help reduce risk by spreading out purchase prices. Moreover, by adding small-cap and mid-cap ETFs to a portfolio along with an S&P 500 ETF, investors achieve more diversification, which can help reduce risk and may lower the investment portfolio's volatility.
A sector ETF is less diversified than a broad index fund, meaning it may perform better if the sector is hot, but it also carries a higher risk of being negatively impacted by problems within the sector. Adding a sector ETF to a diversified portfolio can provide an attractive way to invest in a specific industry without needing to know all the individual companies. Some of the top sector ETFs include health care funds, consumer staples funds, and technology funds.
Lastly, it's worth mentioning that ETFs trade on a stock exchange, allowing anyone to purchase them, and they can be bought and sold during the day, unlike mutual funds. This feature, combined with their passive management and low fees, makes ETFs an attractive investment option for both beginners and experienced investors alike.
- Personal-finance enthusiasts considering investing in stock market may find S&P 500 ETFs, such as the VOO, IVV, and SPY, advantageous due to their low expense ratios and broad market exposure, delivering about 10% average annual returns over the long term.
- For those interested in business and finance, diversifying investment portfolios could involve investing in various types of securities, including Exchange-Traded Funds (ETFs), which provide a simple way to invest in a diverse portfolio of large-cap U.S. stocks and are attractive due to their passive management, low fees, and ease of purchase for personal-finance management.
