How to Invest in a Vanguard S&P 500 Fund

The Vanguard S&P 500 Index Fund was the first index-tracking mutual fund when it was launched in 1976. The fund owns the same stocks in the same proportion as the S&P 500 stock index. The stocks in the index represent 75 percent of the value of the U.S. stock market, and the index closely tracks the overall value of the U.S. stock markets. Vanguard offers the S&P 500 Index Fund in two flavors – a mutual fund and an exchange-traded fund (ETF).

Vanguard S&P 500 Mutual Fund

To buy the Vanguard S&P 500 Mutual Fund, you must purchase shares directly from the fund company. At Vanguard.com, you'll have to open an account first. Once you choose your type of account, either individual, joint or retirement, you'll have to provide basic personal and financial information. Fund your account by either mailing a check or making a deposit electronically.

The minimum purchase for the Vanguard S&P 500 Mutual Fund is $3,000, or $2,000 if you are buying the fund in an educational savings account, where the minimum is $2,000. Additional purchases can be made for as little as $100. You can set up future automated purchases by linking your bank account. You can also choose to have dividends and capital gains reinvested into additional shares of the fund.

Vanguard S&P 500 Exchange-Traded Fund

You don't need to open an account with Vanguard to buy the Vanguard S&P 500 Exchange-Traded Fund, although it may help you save money. Like all ETFs, the Vanguard S&P 500 ETF trades on the national exchanges, like a stock. As long as you have an open account with a brokerage firm, you can place an order to buy the Vanguard ETF.

The Vanguard S&P 500 ETF trades under the stock symbol VOO. You'll have to pay an ordinary stock commission to buy or sell shares of the ETF. However, if you have a brokerage account at Vanguard, you can buy or sell VOO for free.

Vanguard Costs

Vanguard has long been the low-cost leader when it comes to mutual fund expenses. However, as financial services is a competitive field, Vanguard has now been challenged for the low-cost crown by firms like Schwab. The differences are still minimal, however. For example, the Vanguard S&P 500 Mutual Fund has an expense ratio of just 0.14 percent, while the ETF charges just 0.04 percent annually, plus commissions to buy or sell if applicable.

Tip

  • The mutual fund option for the Vanguard S&P 500 Index Fund allows you to make additions to your account in amounts of $100 or more and have dividends and capital gains automatically reinvested into more shares.
  • The ETF shares of the Vanguard S&P 500 fund can be traded during market hours to profit from short-term swings in the S&P 500 stock index.
  • You typically pay a stock commission to buy and sell shares of an ETF. With a discount brokerage account from Vanguard, you can buy or trade the ETF shares without paying any commissions.

About the Author

John Csiszar earned a Certified Financial Planner designation and served for 18 years as an investment counselor before becoming a writing and editing contractor for various private clients. In addition to writing thousands of articles for various online publications, he has published five educational books for young adults.


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