How to invest in the S&P 500 Index

Investing in an S&P 500 fund gives you exposure to some of the biggest, most successful companies in the world.

That said, there are numerous ways to invest in the S&P 500, and the choices might seem overwhelming if you’re new to investing. We’re here to guide you through the process, every step of the way.

What is the S&P 500 index?

The S&P 500 is the benchmark stock market index in the United States. It tracks the performance of 500 companies that are listed on various stock exchanges throughout the USA, and is heavily weighted toward five individual stocks: Microsoft, Apple, Google, Amazon, and Facebook. You can read lots more about the S&P 500 on the S&P 500 index page.

Is it a good investment?

The biggest advantage that investing in an index offers over an individual stock is diversification. With the S&P 500 you’ll be spreading your risk across 500 stocks instead of just one, making your investment less prone to volatile price swings. 

But while investing in the S&P 500 index is generally a safer investment, it has its flaws too, such as that index funds tend to fall across the board if a bear market sets in. Similarly, while you’re invested in multiple stocks – performance is mirrored when the United States makes certain decisions, or the US dollar falls.

Consider all risk and reward factors before buying any investment asset, including any investment product pegged to the S&P 500.

How do I invest in the S&P 500 index?

Now that we’ve run down some of the basics, it’s time to dig in with more information on steps you need to take to invest in the S&P 500 index. Here are three key factors to consider before making your move: 

  1. Choose an investment type
  2. Use our top tips to succeed
  3. Choose a platform to invest with

1. Choose an investment type

There are many different methods you can use to invest in the S&P 500 index. So in the same way that you’d need to vet multiple banks before choosing where to open a savings account, you’ll want to review each S&P 500 investment option before making your selection. Here are your options:

ETFs

An ETF (exchange-traded fund) is an investment fund traded on a stock exchange, much like a stock. ETFs can hold different assets, such as individual stocks, bonds, or commodities, or serve as a proxy for a stock index such as the S&P 500. With the benefit of asset diversification combined with low fees, an S&P 500 index ETF can be a good way to invest your money in the S&P 500 but still retain the ability to trade your investment on an exchange. Still, an S&P 500 ETF can become volatile and dangerous during a bear market, when market indices fall sharply.

This method of investing is for you if you want to enjoy the diversification of the S&P 500, combined with low fees and the ability to trade your investment on an exchange. You can browse available S&P 500 ETFs here.

Individual stocks

Another way to invest in the S&P 500 index is to buy shares in all 500 of the stocks that the index tracks. This can be done using an online broker. On the plus side, going this way enables you to then decide which stocks you want to keep longer-term, and which ones you want to unload – something you can’t do if you invest in the index as a whole. The downside is that making 500 separate transactions to buy each stock will run up your transaction fees in a hurry and take up a lot more of your time.

This method of investing makes sense for you if you want to test-drive all 500 S&P 500 stocks, then be able to trim down your holdings to focus on a smaller number of top performers. The transaction fees associated with this strategy are large, so this is generally recommended for investors with larger investing budgets and time on their hands.

Mutual funds

A mutual fund is a professionally-managed investment fund that pools money from a wide array of investors to invest in different assets, in this case the S&P 500 index as a whole. An S&P 500 fund offers the same type of advantage that the S&P 500 ETF does, in that you’re invested in all 500 of the S&P 500’s stocks. However, unlike ETFs mutual funds cannot be freely traded and must be bought through a stockbroker or directly from the S&P 500 fund.

One negative of mutual funds is that they charge higher fees than ETFs do. Also, while mutual S&P 500 fund defrays risk through diversification, it also means you’ll be stuck holding both the best- and worst-performing stocks within the broader S&P 500 index. (A mutual S&P 500 fund is also commonly called an index fund).

An S&P 500 mutual fund makes the most sense for investors who want to buy and hold for a longer period of time, since it cannot be traded in the same way as an ETF.

2. Use our top tips to be a successful investor

Before you invest in the S&P 500, review these top tips.

  • Do your research. Take the time to research the pros and cons of S&P 500 investing, as well as the different methods you can use to invest in the S&P 500. Having a plan ahead of time will improve your odds of success.
  • Set a budget. Set a budget that suits your lifestyle and your tolerance for risk. You don’t want to get into a situation where you accrue losses so large that it wrecks both your confidence and your ability to make future trades.
  • Select the right platform. We’ve already highlighted the different S&P 500 trading platforms you can use to invest in the S&P 500 index in the previous section. Consider all the options available and choose the one that works best for your investing needs.
  • Grow your investments gradually. For beginners, it might make sense to invest a smaller amount of money to start. You can always invest bigger amounts as you gain more experience and expertise.
  • Think long-term. Investing in index funds is often a long-term strategy, one that can be used to take advantage of months or even years of gains, as major index funds aim for consistent steady growth over time.

3. Choose a platform to invest with

Once you have decided how you want to invest in the S&P 500, you’ll need to find a service that will execute your trade. Here are some of the most popular options for investing in the S&P 500. 

  • Brokers & S&P 500 trading platforms. Brokers and S&P 500 trading platforms offer easy-to-use tools that enable you to invest in the S&P 500. Online trading platforms offer low transaction fees, which is a big plus. On the other hand, they tend not to have a huge amount of investment advice, so if you’re looking for more tailored customer experience, you might want to look elsewhere.
  • Robo advisors. Robo advisors rely on algorithms to execute trades, thus also offering the benefit of low transaction costs. Moreover, many robo-advisors will also allow you to discuss your investment strategy with a human advisor to help you make the right decisions. Still, this too is a more hands-off approach than investing through a licensed financial advisor.  
  • Financial advisors. Financial advisors offer the most hands-on approach to investing, walking you through the pluses and minuses of various different investment options, which can be a big help to novice investors. However, investing in the S&P 500 index is a relatively simple investment approach, and as such might not warrant the expensive fees that financial advisors charge. 
  • Banks. You can invest in an index such as the S&P 500 through your bank, which can give you the convenience of having all of your financial instruments (e.g. checking account, savings account, line of credit, and investments) with the same institution. The problem is that banks tend to charge very high fees, while still not offering a high level of advice that a good financial advisor can. 
FOREX.com
Key Features
Access over 220 of the most popular company shares
Trade on spreads from 1 pt on UK shares
Go long or short on global top companies
Min Deposit
$50
United States
Start Trading View key features
Key Features
Access over 220 of the most popular company shares
Trade on spreads from 1 pt on UK shares
Go long or short on global top companies
Key Stocks
Payment Methods
Debit Card, Bank Wire, ACH, Credit Card, PayPal
Founded in 1999, part of GAIN Capital Holdings. Licensed in highly regulated jurisdictions, FCA, IIROC, NFA, CFTC, CIMA,FSA. Payment methods ACH, debit card, bank wire transfer. $50 minimum deposit.
Forex trading involves significant risk of loss and is not suitable for all investors.
IG Markets
Key Features
Low-cost UK shares Invest from just £5 per trade
Huge choice of investments - Invest in over 12,000 shares
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Min Deposit
$500
United States
Start Trading View key features
Key Features
Low-cost UK shares Invest from just £5 per trade
Huge choice of investments - Invest in over 12,000 shares
Expert service provided
Key Stocks
Payment Methods
Credit Card, Debit Card, Bank Transfer, PayPal
The world-leading online trading and investments provider giving clients access to opportunities across thousands of financial markets through our intuitive platforms and apps.
Nadex
Key Features
CFTC Regulated exchange based in the US
Trade around the clock, how you want, when you want
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Min Deposit
$250
United States
Start Trading View key features
Key Features
CFTC Regulated exchange based in the US
Trade around the clock, how you want, when you want
100% defined risk trades on Forex, Stock Index Futures and Commodities underlying markets
Key Stocks
Payment Methods
ACH, Debit Card, Wire Transfer
Nadex is the first, and largest, CFTC regulated exchange designed for the individual trader. Nadex offers around the clock trading on Forex, Stock Index Futures and Commodities. Nadex offers three unique contract types: Binary Options, Touch Brackets and Call Spreads giving traders the ability to trade how they want, when they want.

What should I do now?

If you’re ready to start investing in the S&P 500, go to your chosen trading platform and you can get started right away. However, if you still don’t feel ready and wish to learn more about indices and stocks, check out more of our easy-to-navigate educational courses, right here on this site.

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Still not feeling ready to start investing in the S&P 500 index? No problem. You can learn all the fundamentals you’ll need to get started with Invezz.com.

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Written by: Harry Atkins
Harry joined us in 2019 to lead our Editorial Team. Drawing on more than a decade writing, editing and managing high-profile content for blue chip companies, Harry’s considerable experience in the finance sector encompasses work for high street and investment banks, insurance companies and trading platforms.