SPY (the S&P 500 exchange-traded fund, or ETF) buys the shares in the S&P 500, an index of large US companies. It charges 0.0945% a year. That is $9.45 on every $10,000 invested.
SPY is an index fund. It buys what an index holds, so its return follows the index, minus its costs. Here is how an index fund tracks its index, what it costs and how safe it is, using SPY and four other S&P 500 funds.
What is an index fund? An index fund holds the shares in a market index, in the same proportions. Its return follows that index, minus its costs.
The five S&P 500 index funds in this guide charge from 0.03% to 0.14% a year. Actively managed share funds, where a manager picks the shares, charged an average of 0.64% in 2025.
Four of the five trailed the S&P 500 by about their fee over ten years. SPY trailed by 0.15 percentage points a year, against a fee of 0.0945%.
An index fund falls when its index falls. SPY lost 33.7% from 19 February to 23 March 2020, with dividends counted.
What is an index fund?
The US Securities and Exchange Commission (SEC) puts it simply. Index funds follow "a passive investment strategy that is designed to achieve approximately the same return as a particular index before fees."
An index is a list of shares with rules for how much of each to count. The S&P 500 holds 500 leading US companies. They cover about 80% of the value of the US stock market that is available to buy, according to S&P Dow Jones Indices. Each share in the index is a slice of a company, as our guide to what a stock is explains.
The opposite is an actively managed fund. There, a manager picks which shares to hold. An index fund follows a set list instead.
The first index fund for individual investors opened on 31 August 1976. John Bogle launched it at Vanguard as First Index Investment Trust. It raised a little more than $11 million. Today it is the Vanguard 500 Index Fund.
Index funds come in two forms. Mutual fund shares are bought from the fund and sold back to it, at the next price the fund calculates. Exchange-traded fund (ETF) shares trade on an exchange at the market price whenever the market is open. That is how the SEC describes them. SPY is an ETF.
How does an index fund track its index and weight its holdings?
Vanguard describes the method in three steps. An index fund holds the same shares as its index, or a representative sample of them. It aims for the index's weights. It rebalances when the index does. That means it buys and sells shares to match the index's new list and weights.
Holding every share is called full replication. Holding a representative sample is called sampling.
The S&P 500 weights each company by its float-adjusted market value. That is the share price times the shares available to trade. A bigger company gets a bigger slice of the fund. An S&P 500 fund rebalances every quarter, according to iShares.
Source: State Street Global Advisors
Chart 1 shows SPY's ten largest holdings on 1 October 2026. Nvidia was the biggest at 8.45%. Alphabet appears twice because it has two classes of share in the index, together 5.41%. Fox and News Corp also appear twice in SPY's holdings list. The ten made up 38.9% of the fund. So an S&P 500 fund spreads money across 500 companies, but not evenly.
What does an index fund cost?
The main cost is the expense ratio. It is the yearly fee, taken from the fund's assets, as a % of the money invested.
Source: Investment Company Institute; State Street Global Advisors; Vanguard; iShares
Chart 2 compares S&P 500 funds with average fees from the Investment Company Institute (ICI), the US fund industry body. In 2025, actively managed mutual funds holding shares charged an average of 0.64%. Index mutual funds holding shares charged 0.05%. Index ETFs holding shares charged 0.14%. These averages cover all index funds that hold shares, of which S&P 500 funds are one part. Large funds count for more in them.
Fees have fallen. Vanguard's first index fund cost 0.43% a year at launch. Vanguard now sells it in two share classes. Admiral shares cost 0.04% a year. The original Investor shares cost 0.14% and are closed to new investors, according to Vanguard.
The fee shows up in a fund's results. Tracking difference is how far a fund's return falls short of its index. The table uses each issuer's own ten-year figures.
Fund | Expense ratio | Fund return a year, 10 years | S&P 500 Index, same 10 years | Gap, points a year | 10 years to |
|---|---|---|---|---|---|
SPDR S&P 500 ETF Trust (SPY) | 0.0945% | 15.22% | 15.37% | 0.15 | 31 Aug 2026 |
iShares Core S&P 500 ETF (IVV) | 0.03% | 15.47% | 15.50% | 0.03 | 30 Jun 2026 |
Vanguard S&P 500 ETF (VOO) | 0.03% | 15.29% | 15.33% | 0.04 | 30 Sep 2026 |
Vanguard 500 Index Fund Admiral (VFIAX) | 0.04% | 15.29% | 15.33% | 0.04 | 30 Sep 2026 |
Vanguard 500 Index Fund Investor (VFINX) | 0.14% | 15.18% | 15.33% | 0.15 | 30 Sep 2026 |
Source: State Street Global Advisors, iShares and Vanguard fund pages
For four of the five funds, the gap was within 0.01 points of the fee. SPY's gap was wider. It charges 0.0945%, but trailed by 0.15 points a year. The issuers' pages do not break down the rest of that gap.
What do fees do to $10,000 over ten years?
Source: YX Insights price data; YX Insights
Chart 3 starts with $10,000 put in SPY on 20 June 2016. By 24 September 2026, it was worth $43,469 with dividends counted. That is 15.4% a year over ten years and three months. The table's 15.22% covers a different window, the ten years to 31 August 2026.
We then swapped SPY's fee for three other rates. At 0.03%, the same money would have grown to $43,758. That is $289 more than SPY's actual result. At 0.14%, it would have reached $43,267. At the 0.64% active fund average, it would have reached $41,103. That is $2,366 less than SPY's result, from the fee alone. The gap grows with time, because each year's fee is taken from a bigger sum.
Are index funds safe?
An index fund limits the damage one failing company can do. It keeps the risk of the whole market falling.
Source: YX Insights price data
Chart 4 shows how far SPY stood below its previous high on each day. It fell more than 10% five times in ten years. The worst was 33.7%, from 19 February to 23 March 2020. It regained that high on 10 August 2020. The 2022 fall reached 24.5% in October 2022. It took until 13 December 2023 to recover.
There is also concentration. With 38.9% in ten holdings, a fall in its biggest holdings moves the whole fund. Our guide to asset classes compares the falls of shares with bonds, cash and other assets.
What should you check before choosing an index fund?
SPY returned 15.4% a year from June 2016 to September 2026. That is the record of one period. It includes the falls in Chart 4. The record of fund managers against the index is covered in Can Systematic Investing Beat the S&P 500?
When comparing index funds, a few checks help:
The index. An S&P 500 fund holds large US companies only. A global index fund adds companies from other countries.
The expense ratio. It is on the issuer's fund page.
The tracking difference. Compare the fund's return with its index over five or ten years.
Where it is based. UK investors can buy Ireland-based versions listed in London. These follow European fund rules known as Undertakings for Collective Investment in Transferable Securities (UCITS). One example is the iShares Core S&P 500 UCITS ETF. It charges 0.07% and can be held in an Individual Savings Account (ISA), according to iShares.
An index fund holds the shares in its index, in the index's own weights. Its return is the index minus a small fee: 0.0945% a year for SPY. That cuts the cost of investing. It does not cut the risk of the market falling.
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