Ultimate S&P 500 ETF Guide: Which One Tops the Charts?

Find out which S&P fund to invest in and how they compare against each other (ireland domicile included)

Find out which S&P fund to invest in and how they compare against each other (ireland domicile included)

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“Just dollar-cost average into the S&P 500,” they say. Easy, right? But when you’re faced with a smorgasbord of ETFs all vying to replicate that sweet S&P 500 magic, suddenly “easy” feels like choosing your favorite ice cream flavor at that gourmet gelato place. Yeah, they’re all good, but you know some are just… better. So, in a sea of options, how do you pick your champion?

What’s the S&P 500 Index?

The Standard & Poor’s 500, or simply the S&P 500, is a market-capitalisation-weighted index of 500 of the largest publicly traded companies in the U.S. It’s widely regarded as the best single gauge of large-cap U.S. equities. From tech behemoths to retail giants, the index offers a snapshot of the corporate prowess that drives the world’s largest economy. More than just a list, the S&P 500 reflects over 80% of the U.S. equity market’s value, making it a critical barometer for economic health and investor sentiment. What is an S&P 500 ETF? An S&P 500 ETF is a fund that seeks to mimic the performance of the S&P 500 Index by holding the same stocks in the same proportions. These ETFs offer investors a slice of the U.S. equity market’s dynamism through a single, tradable security. With the convenience of stocks and the diversification benefits of mutual funds, S&P 500 ETFs have democratised access to the performance and resilience of leading U.S. companies.

Let’s compare between the different types of S&P

Expense RatioTotal return over 5 years
(as at 24/03/24)
Fund SizeRemark
S&P 500-84.67%
SPY0.0945%84.51%$382.2BDistribute dividend
VOO0.03%84.63%$314.0BDistribute dividend
IVV0.03%84.12%$399BDistribute dividend
RSP0.2%59.56%$300.09MAll companies listed on S&P 500 have equal weightage
CSPX0.07%98.61%$83 BReinvest dividend for you. Ireland domicile, Withholding tax 15% instead of 30%
VUSA0.07%91.08%$39.7 BIreland domicile, Withholding tax 15% instead of 30%
VUAG0.07%96.73%$50.41BReinvest dividend for you. Ireland domicile, Withholding tax 15% instead of 30%

Here’s why we chose fund size, expense ratio, and the choice between accumulating and distribute dividend as basis of comparison:

Fund Size:

  • Liquidity: Larger funds generally have better liquidity, which means you can buy and sell shares of the ETF more easily without affecting the price too much. This is especially important if you need to move large amounts of money or exit your position quickly.
  • Stability: A large fund size often indicates a certain level of investor trust and a longer track record. It can be seen as a sign of stability and reliability, as many other investors have also committed their capital.
  • Survivability: Smaller ETFs might be at risk of closure if they don’t manage to attract enough interest. This could force you to sell at an inconvenient time.

Expense Ratio:

  • Cost Efficiency: The expense ratio represents the annual cost of owning the ETF, expressed as a percentage of the fund’s assets. A lower expense ratio means fewer costs are being taken out of the fund’s assets to cover management fees and operational expenses, which can improve your investment returns over time.
  • Impact on Returns: Over the long term, even small differences in expense ratios can make a significant difference in investment outcomes due to the compounding effect.

Accumulating vs. Payout (Distributing) Options:

  • Accumulating Funds: These funds reinvest any dividends or interest earned back into the fund. This automatic reinvestment can help compound growth, as returns start generating their own returns. It’s beneficial for those who do not need immediate income and prefer to grow their investments.
  • Distributing Funds: These funds pay out dividends to investors, which can be attractive if you’re seeking a regular income stream from your investments. This option is often preferred by retirees or those who need regular cash flow.

Why did Ireland domicile ETF perform much better?

There was a period where the Euro was stronger against the USD, contributing to the appearance that Ireland domiciled ETFs performed much better. This advantage comes from the currency conversion dynamics, as well as the favorable tax treatment in Ireland, where the withholding tax on dividends is only 15%, compared to 30% in the USA. While hindsight may favor the decision to invest in Ireland-domiciled ETFs, it’s crucial to remember that currency trends can reverse, potentially affecting returns.

Ireland Domicile ETF Performance

Choosing Your S&P 500 ETF

When selecting your S&P 500 ETF, consider more than just past performance. Look at the expense ratio, dividend treatment, and domicile of the fund to understand how these factors might influence your overall returns. For instance, CSPX and VUAG’s dividend reinvestment feature might appeal to those looking for compounding growth without manual reinvestment, while SPY, VOO, and IVV offer liquidity and lower expense ratios that might better suit cost-conscious investors.

Remember, the “best” S&P 500 ETF or even the decision to invest in S&P 500 depends on your individual investment goals, and how you balance the trade-offs between expense ratios, tax efficiency, and ease of management. With careful consideration, you can select an ETF that aligns with your strategy, helping you navigate the market’s ebbs and flows with confidence.

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