Choosing the Best S&P 500 ETF for Long-Term Growth in 2026

As 2026 unfolds, investors seeking exposure to the S&P 500 face a critical decision: whether to opt for market-cap-weighted or equal-weighted ETFs. Both strategies offer distinct advantages and trade-offs in terms of cost efficiency, diversification, and long-term performance. This analysis evaluates these options, drawing on recent data to guide investors toward the most suitable choice for their financial goals.

Cost Efficiency: The Expense Ratio Divide

Market-cap-weighted S&P 500 ETFs, such as the Vanguard S&P 500 ETF (VOO), SPDR S&P 500 ETF Trust (SPY), and iShares Core S&P 500 ETF (IVV), are renowned for their ultra-low expense ratios. As of 2026, IVV and VOO charge 0.03% annually, while SPY's fee stands at 0.0945%. In contrast, the Invesco S&P 500 Equal Weight ETF (RSP) carries a significantly higher expense ratio of 0.20%.

These differences may seem minor but compound meaningfully over time. For instance, a $10,000 investment in IVV or VOO incurs $3 in annual fees, whereas the same amount in SPY costs $9.45 annually. RSP's $20 fee per $10,000 investment underscores the cost burden of equal-weighted strategies, which require more frequent rebalancing to maintain equal allocations.

Diversification: Mitigating Megacap Overexposure

The S&P 500's market-cap-weighted structure inherently favors large companies, particularly the "Magnificent Seven" tech giants. In 2026, these stocks dominate the index, accounting for over 30% of its total market value. While this concentration has driven recent gains, it also amplifies risk in scenarios where tech growth slows.

Equal-weighted ETFs like RSP address this imbalance by allocating equal capital to all 500 constituents. This approach reduces reliance on megacap stocks and spreads risk more evenly across sectors. For example, during periods of AI-driven tech volatility, RSP's diversified structure could outperform its market-cap counterparts. However, this diversification comes at the cost of higher fees and potentially lower returns in bull markets dominated by large-cap stocks.

Long-Term Performance: A Tale of Two Strategies

Historical performance highlights the divergent paths of these strategies. Over the past decade (2016–2026), market-cap-weighted ETFs have outperformed due to the meteoric rise of tech stocks. The Invesco S&P 500 Equal Weight ETF (RSP), however, has shown resilience in shorter-term cycles, such as a 4.8% gain compared to 1.5% for market-cap ETFs during specific market shifts.

Looking ahead, projections suggest a potential reversal. A 2026 report by CMark Capital indicates that equal-weighted ETFs could deliver 7% higher annual returns over the next decade, assuming a more balanced market. This optimism stems from RSP's 13.2% 3-year annualized return, which reflects its ability to capitalize on broader market participation.

Risk Metrics: Volatility and Drawdowns

While equal-weighted ETFs offer diversification, they are not immune to risk. Historical data reveals that RSP has experienced deeper maximum drawdowns than its market-cap counterparts. Over the past decade, RSP's worst decline reached -38.93%, compared to -33.71% for market-cap ETFs. Similarly, in the past five years, RSP's max drawdown was -21.16%, slightly worse than the -22.60% seen in market-cap ETFs.

These figures suggest that equal-weighted strategies may amplify downside risk during broad market corrections. However, the gap narrows in recent years, indicating that RSP's volatility could moderate as the S&P 500's sector balance evolves.

Conclusion: Balancing Cost, Diversification, and Risk

For investors prioritizing cost efficiency and alignment with current market trends, market-cap-weighted ETFs like VOO or IVV remain compelling choices. Their low fees and historical outperformance make them ideal for those comfortable with tech-driven growth.

Conversely, investors seeking to hedge against megacap overexposure and potential market shifts may prefer RSP. While its higher fees and volatility are drawbacks, its diversification benefits and projected long-term gains could justify the trade-off in a more balanced market.

Ultimately, the decision hinges on an investor's risk tolerance, time horizon, and market outlook. In 2026, a hybrid approach-allocating to both strategies-may offer the best of both worlds, leveraging low-cost market-cap ETFs for growth and equal-weighted options for diversification.