Why the S&P 500 Makes Sense for Small Bets
When Warren Buffett talks about investing, he often returns to a simple, powerful idea: own a broad market index, like the S&P 500. For many beginners and even seasoned investors who don’t want to pick individual stocks, a low-cost S&P 500 ETF can be the fastest path to diversified exposure to America’s largest companies. If you have $100 to invest, the question becomes: which ETF should you choose and why?
What to Look for in an S&P 500 ETF
Before we name a recommendation, here are the key features that matter for a small initial investment:
- <strongExpense ratio: Lower is better. Even a 0.03% difference can compound over years.
- Liquidity and trading efficiency: Narrow spreads mean you pay less when buying and selling.
- Tracking error: How closely the ETF follows the S&P 500 index.
- Replication method: Physical (holding the securities) vs. synthetic (derivatives). Physical is generally preferred for simplicity and transparency.
- Dividend treatment: Some ETFs accumulate or distribute dividends—choose what fits your preference.
The Top Pick for a $100 Start
For most new investors starting with $100, the best choice is a **low-cost, highly liquid S&P 500 ETF with a strong track record of tracking the index**. In practice, the two most accessible options in the U.S. market are the Vanguard S&P 500 ETF (VOO) and the iShares Core S&P 500 ETF (IVV). A close third, the SPDR S&P 500 ETF Trust (SPY), offers exceptional liquidity but often comes with a marginally higher expense ratio and slight tracking differences in some periods. Between VOO and IVV, the choice often comes down to personal preference and the specific broker you use, since both offer similar exposure at very low costs.
Why VOO is a Strong Default for $100
VOO is designed to track the S&P 500 with a very low expense ratio (typically around 0.03%). It’s widely available, highly liquid, and has a long history of near-perfect tracking relative to the index. For a $100 investment, your goal is to minimize fees and maximize your exposure to the broad U.S. market. VOO accomplishes this by holding the same 500 companies that define the index and scaling the position so that your $100 buys a representative slice of the market.
Compare with IVV and SPY
IVV also offers a 0.03% expense ratio and a similar portfolio to VOO. Some investors prefer IVV due to slightly different cost and tax considerations in certain accounts. SPY is the oldest and most traded S&P 500 ETF, often with the tightest bid-ask spreads, which can be an advantage for very active traders. However, its expense ratio sits a touch higher in some periods, and the tracking differences may be negligible for a long-term buy-and-hold strategy like Buffett would endorse.
How to Buy With $100
1) Choose your broker and ensure fractional shares are supported. Many platforms now allow you to buy a fraction of an ETF, so your entire $100 can be invested even if the share price is higher than $100. 2) Select the ETF tickers (VOO, IVV, or SPY). 3) Enter the amount you want to invest and place a market or limit order. 4) Reinvest dividends if possible to maximize compounding over time. 5) Set a simple plan for ongoing contributions, so your balance grows as you add more money each month or quarter.
Bottom Line
If you want the smartest S&P 500 ETF to buy with $100 right now, start with a low-cost, widely supported option like VOO or IVV. They deliver broad market exposure, minimal fees, and a straightforward path to long-term growth aligned with Warren Buffett’s core investing philosophy: passive, cost-conscious indexing that lets the market do the heavy lifting over time.
FAQs
Q: Do I need to pick a single ETF to own forever?
A: For most investors, owning one or two of the major S&P 500 ETFs with a long-term horizon is sufficient. You can always diversify later if you want more asset classes.
Q: Should I reinvest dividends?
A: Yes. Reinvesting dividends accelerates growth and compounds your returns over the years.
