S&P 500 Breaks Record High, Boost to Index Funds

1:57 PM, Mar 28, 2013   |    comments
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Photo: NOEL CELIS/AFP/Getty Images)


John Waggoner, USA TODAY

STORY HIGHLIGHTS

  • The S&P 500 index's new high affects millions of investors
  • Many stock mutual funds track the index or measure their performance against it
  • Reinvested dividends have already pushed many S&P funds higher than the benchmark
If you think the new high in the Standard & Poor's 500 stock index doesn't affect you, think again: The odds are good that you either own a fund that tracks the index or one whose manager is measured against it.

The S&P 500 broke past its old record high, set Oct. 9, 2007 during morning trading Thursday. The news should have had millions of investors cheering.

TRACKER: Real-time quotes with USA TODAY's Portfolio Tracker

But funds that track the S&P 500 have already passed their old record, thanks to reinvested dividends. Large-cap core funds, the Lipper category closest to the index, have gained just 8,1% since the S&P 500's earlier record.

Sturdy performance and rock-bottom costs are one reason S&P 500 index funds now have more than $500 billion in assets, up from $366 billion a decade ago.

Worldwide, S&P 500 index funds have $1.3 trillion in assets, says S&P. Another $5.6 trillion is benchmarked to the S&P 500, meaning that the managers of that money are judged by how well they do against the index.

But the secret to the unmanaged funds is their rock-bottom costs. A $10,000 investment in the SPDR costs you just $9 a year in management fees, vs. $125 for the average stock fund. Over time, those savings can add thousands of dollars to your account.

Index funds aren't only popular with individual investors. Financial advisers have discovered that they can create custom-tailored portfolios for clients with index funds and index-based exchange-traded funds. Clients' costs, including the funds' management fees, are about the same as an actively managed mutual fund.

The popularity of S&P 500 funds has spearheaded a rush to index investments of all types, from bonds to stocks to commodities. Currently, about 29% of all mutual fund assets are indexed, vs. 11% in 2000, according to Strategic Insight, which tracks the funds and fund flows.

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