The Absolute Cheapest Way to Buy the S&P 500? FXAIX Might Be It.

By Omor Ibne Ehsan Published Jun 2, 3:15PM EDT

Quick Read

At just 2 basis points, FXAIX eliminates bid-ask spreads and invests every dollar fully, making it the cheapest S&P 500 path for long-term holders.
SPY holds the tax-efficiency edge in taxable accounts, but inside an IRA or 401(k) that advantage disappears entirely.
It sounds nuts, but SoFi is giving new active invest users up to $1,000 in stock for a limited time, and all it takes is a $50 deposit to get started. See for yourself (Sponsor)

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The Absolute Cheapest Way to Buy the S&P 500? FXAIX Might Be It. — © Dmitry Demidovich / Shutterstock.com

Every conversation about the cheapest way to own the S&P 500 lands on the same few tickers from the major ETF sponsors. Rock-bottom expense ratios, deep liquidity, trades like a stock all day. Sitting outside that crowd is Fidelity 500 Index Fund (NASDAQ:FXAIX), a mutual fund rather than an ETF. For a particular kind of buyer, that structural difference is the whole reason to care about FXAIX.

The structure nobody talks about

FXAIX prices once per day at net asset value. SPDR S&P 500 ETF (NYSEARCA:SPY) trades all day on an exchange. For a day trader, SPY’s structure wins easily. For someone funneling $500 into the index every other Friday for the next 30 years, the math flips.

Every SPY purchase crosses a bid-ask spread. Small, sure. SPY’s spread is usually a penny or two on a share trading near $759. Every buy and every sell pays it, and across decades of recurring contributions the friction compounds against you. Cheaper SPDR siblings have wider spreads because of lower volume. FXAIX has no spread. Buyers and sellers transact at the same NAV print at 4 p.m.

ETFs can also trade at a brief premium or discount to their underlying basket. Usually trivial for SPY, never literally zero. FXAIX cannot drift from NAV by structure.

Mutual funds also let you invest exactly $250, not 0.329 shares of an ETF with leftover cash sitting idle. Inside a 401(k) auto-contribution or a recurring IRA buy, full dollars get fully invested. Vanguard’s 2024 data shows the average participant routes 75-80% of contributions to equities, mostly on autopilot. Friction at the margin matters when the strategy is repetition.

What the cost actually is

SPY runs a 0.0945% expense ratio, or 9.45 basis points. FXAIX sits at 1.5 basis points, give or take. Versus even the rock-bottom ETF tier from rival sponsors, FXAIX is essentially tied or marginally cheaper on headline fees. Add the no-spread, no-premium, fully-invested-dollar advantages, and for a pure buy-and-hold holder it can be the lowest total-cost path to the index inside a major institution.

What the returns show

Both funds own the same basket. SPY’s top weights read NVIDIA (NASDAQ:NVDA | NVDA Price Prediction) near 8%, Apple (NASDAQ:AAPL) near 7%, Microsoft (NASDAQ:MSFT) near 5%, and FXAIX mirrors that allocation almost exactly.

Over the trailing year, FXAIX’s dividend-adjusted return was almost identical to that of most S&P 500-based ETFs. Most of the “gap” is dividends, folded into the adjusted number but absent from the price number. Strip the methodology out and the funds track within a basis point or two. The slim residual goes to whichever vehicle costs less and bleeds less to friction.

The tradeoffs you accept

Three of them are real.

Tax treatment in a taxable account. ETFs use in-kind redemptions to shed embedded gains. Mutual funds do not, so FXAIX will likely push more capital gains distributions over time. Inside an IRA or 401(k), irrelevant. Inside a taxable brokerage, SPY wins this one.
No intraday execution. You cannot sell FXAIX at 10:47 a.m. on a panic morning. Your order fills at 4 p.m. NAV regardless. Fine for a long-term holder, a hard no for tax-loss harvesting in real time or options hedging.
Fidelity-house portability. FXAIX is widely available inside Fidelity, but moving mutual fund positions between brokerages can be clunkier than moving ETF shares. If you might leave Fidelity someday, factor that in.

Who actually wants this

The set-it-and-forget-it investor. The auto-contribution 401(k) and IRA holder. The Fidelity customer running a monthly buy who does not mind that the order fills at 4 p.m. instead of 10 a.m. For that person, FXAIX is the quiet winner of the cheapest-S&P-500 contest, because it does not trade like a stock.

SPY stays the right tool for traders, options users, and anyone in a taxable brokerage who values ETF tax efficiency. Different tools, different jobs.

DISCLOSURE:

Customer must fund their Active Invest account with at least $50 within 45 days of opening the account. Receive a minimum of $15. Probability of member receiving $3,000 is a probability of 0.026% If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Percentages for the $3,000 are subject to decrease. See full terms and conditions.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA(www.finra.org)/SIPC(www.sipc.org). Advisory services are offered by SoFi Wealth LLC, an SEC-registered investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov. Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 30 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Other fees, such as exchange fees, may apply. Please view our fee disclosure to view a full listing of fees. Investing in alternative investments and/or strategies may not be suitable for all investors and involves unique risks, including the risk of loss. An investor should consider their individual circumstances and any investment information, such as a prospectus, prior to investing. Interval Funds are illiquid instruments, the ability to trade on your timeline may be restricted. Brokerage and Active investing products offered through SoFi Securities LLC, Member FINRA(www.finra.org) /SIPC(www.sipc.org). There are limitations with fractional shares to consider before investing. During market hours fractional share orders are transmitted immediately in the order received. There may be system delays from receipt of your order until execution and market conditions may adversely impact execution prices. Outside of market hours orders are received on a not held basis and will be aggregated for each security then executed in the morning trade window of the next business day at market open. Share will be delivered at an average price received for executing the securities through a single batched order. Fractional shares may not be transferred to another firm. Fractional shares will be sold when a transfer or closure request is initiated. Please consider that selling securities is a taxable event. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire investment Before trading options please review the Characteristics and Risks of Standardized Options Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement This should not be considered a recommendation to participate in IPOs and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation. New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For more information on the allocation process please visit IPO Allocation.

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About the Author Omor Ibne Ehsan →

Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks.