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 | SPY Price Prediction) 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) 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.
Top Gaining Stocks
Top Losing Stocks