Famous for fundamentally reshaping how the world thinks about investing, Benjamin Graham’s influence is so deep that modern value investing, including the philosophy of his protégé Warren Buffett, is built directly on his ideas.
Even though Buffett became an extraordinary stock picker and arguably the greatest investor in our time, he endorses one of Graham’s fundamental themes, that most investors will do better with low-cost index funds rather than individual stock picking.
Graham never commented on S&P 500 index funds directly, as they didn’t exist in his prime, but late in his life, he explicitly endorsed the idea that most investors would be better off owning a broad market index instead of picking stocks.
Modern writers often connect this to the S&P 500 because it’s the dominant U.S. market benchmark.
Most investors underperform the market
Graham observed over 50 years that he had “not known a single person who has consistently or lastingly made money by following the market.” This line is often misunderstood as he was criticizing market timing, not indexing, but it reinforces his belief that most investors fail to outperform.
Even though he never mentioned the S&P 500 by name, Graham’s late-life philosophy aligns perfectly with the idea that a low-cost index fund tracking the broader U.S. market will outperform the majority of individual investors and professionals over time.
In today’s day and age, some may disagree because of the strong outperformance of the tech sector, but the recent selloff among software stocks is certainly restirring this argument along with reemerging tariff uncertainty.
A broad, mechanical approach is superior for the average investor
By 1976, Graham explicitly recommended:
- Broad diversification
- Minimal trading
- Low costs
- Rules-based investing (decisions are driven by predefined, systematic rules, rather than human judgment or emotion)
These are the core principles of modern S&P 500 index funds.
Defensive investors should not try to beat the market
It was noted that Graham believed defensive investors lack the time or inclination to analyze securities deeply; therefore, a broad index fund is the right tool as supposed to “enterprising” investors who devote serious time and skill to individual stock picking.
Top S&P 500 ETFs to Consider
Considering the CAGR for the S&P 500’s total return when including dividends is about 15.7% over the last decade, it’s very unlikely that most investors’ portfolios are outpacing this average annual return.
However, several ETFs serve as low-cost index funds tracking the broader market, and here are a few to consider that currently sport a Zacks Rank #2 (Buy).
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1. Vanguard S&P 500 ETF – VOO
ETF Price: $631
VOO is one of the cheapest and most popular ways to track the S&P 500. Issued by Vanguard, VOO is a classic core holding for long-term investors offering exposure to 500 of the largest U.S. companies and having an extremely low expense ratio of 0.03%.
For context, the median ETF expense ratio is around 0.5%, making VOO dramatically cheaper.
2. iShares Core S&P 500 ETF – IVV
ETF Price: $690
Issued by BlackRock, the IVV is essentially the VOO’s twin outside of some very subtle differences.
Like VOO, IVV has a 0.03% expense ratio and is extremely liquid, but tends to trade a bit more, which can matter for institutions or traders making very large orders of shares being bought or sold at once.
IVV has also had slightly more efficient dividend reinvestment mechanics due to its structure. The difference is tiny — pennies over long periods — but may be more ideal for institutional investors.
3. State Street SPDR S&P 500 ETF – SPY
ETF Price: $687
Launched in 1993 by State Street, SPY is the oldest and most liquid S&P 500 ETF. While SPY has the longest and most established track record, its fee is 3X higher than VOO or IVV, with an expense ratio of 0.0945%. This is still inexpensive in absolute terms, but not the cheapest option for long-term investors.
Notably, SPY is the largest ETF in the world, having over $700 billion in net assets, the total dollar value of all investor money held inside the ETF.
Bottom Line
Owning an S&P 500 ETF is like buying a slice of the entire U.S. economy, its diversified and historically one of the most reliable wealth-building tools ever created.
While stock picking can be exciting and is worthwhile for “enterprising” investors, S&P 500 ETFs are simple, efficient, and statistically superior for most market participants, especially defensive-minded investors.
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State Street SPDR S&P 500 ETF Trust (SPY): ETF Research Reports
Vanguard S&P 500 ETF (VOO): ETF Research Reports
iShares Core S&P 500 ETF (IVV): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
