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The S&P 500 is a a stock market index comprising 500 leading US companies. You can’t invest directly in the index but you can buy securities designed to mirror its performance or, if so inclined, buy the individual stocks of companies in the S&P 500.
At a glance
The S&P 500 is a stock market index composed of the stocks of 500 leading US companies.
Invest in the S&P 500 in two ways: Buy funds that mirror its composition or buy the individual stocks that comprise the index.
S&P 500 index funds provide a convenient, low-cost way to invest in the S&P 500.
2 ways to invest in the S&P 500
Invest in the S&P 500 in two ways: Buy ETFs or mutual funds that track the S&P 500 index or buy individual stocks that make up the S&P 500.
1. Buy an S&P 500 index fund
The easiest way to invest in the S&P 500 is to invest in either an ETF or mutual fund that tracks the S&P 500. Funds that track an index like the S&P 500 are known as index funds.
Index funds are designed to track the performance of and achieve approximately the same return as an underlying index — in this case, the S&P 500. S&P 500 index funds will at the least have exposure to the top constituents — Apple, Microsoft, Amazon, etc. These funds are a great way to add instant diversification to your portfolio at a low cost because a single share purchase gives you exposure to all the underlying stocks.
Since most S&P 500 index funds should, in theory, achieve nearly similar returns, a fund’s performance may not be the most important factor when deciding which to invest in. Investors may want to pay closer attention to expenses, which will likely vary the most between funds.
An alternative way of investing in the S&P 500 is to buy individual stocks in companies listed in the index. This is the more uneconomical way of investing in the S&P 500 and would mean buying and owning the individual stocks of the index.
While DIY is a venerable approach when it comes to projects like home improvement, it's often unnecessary when investing. Picking and choosing individual stocks can get you better results in theory, but it's time-consuming and quite difficult to do consistently. On the other hand, ETFs can provide excellent results for the average investor, and the fees today are often quite low.
— Bob Haegele, Personal finance writer and expert
How to invest in the S&P 500 for beginners
Choose a broker. Most brokers offer stocks and exchange-traded funds (ETFs) but also compare features, fees and other tradable assets. Consider these factors and the platform’s overall feel when choosing a broker.
Open and fund an account. Complete an application with your personal details and link a bank account for funding.
Research investment options. Find the stock, ETF or mutual fund by name or ticker symbol and research it before deciding if it’s a good investment for you.
Place an order. Choose the number of shares or enter a dollar amount if the broker offers fractional share trading. Then, select an order type, whether that’s a market order or limit order or other order type.
Get $100 - $2,000 when you open and fund an account with $5,000 to $100,000+
What is the S&P 500?
The S&P 500 is a market capitalization-weighted stock market index of 500 leading US companies in the most prominent industries of the US economy, traded on either the New York Stock Exchange (NYSE) or Nasdaq. The index was first introduced in 1957. Today, the S&P 500 covers approximately 80% of the available market cap and is widely regarded as the best single measure of US stock market performance.(1)
Though known officially as the S&P 500, the index actually contains 503 stocks as of August 2023. The index includes two share classes of stock from News Corp (NWS), Fox Corp (FOX) and Alphabet (GOOGL).(2)
What companies are in the S&P 500?
The S&P 500 includes some of the most recognizable and popular stocks in the world. The top ten constituents make up around 28% of the entire S&P 500, with Apple alone representing 7.5% of the total index.(3) This is why when Apple is down, the entire index feels it. The top 10 constituents of the S&P 500 by index weight as of August 2023 are:
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Pros and cons of investing in the S&P 500
Pros
Exposure to America’s leading companies. Gain exposure to America’s most influential companies, including Apple, Microsoft, Amazon and Tesla, with a single purchase.
Instant diversification. Buying a single share of an S&P 500 index fund will give you exposure to the stocks of all its underlying companies, immediately diversifying your portfolio.
Competitive long-term performance. Over the past 25 years, the S&P 500 has produced total returns of 9% — or 6.8% when adjusted for inflation.(4)
Ease of investing. Buying shares of an S&P 500 index fund limits the time you need to spend researching and gets you in the market quicker.
Cons
It includes only US companies. The S&P 500 includes only stocks of US companies and excludes companies in other parts of the world.
It includes only large-cap companies. The S&P 500 includes only large-cap stocks, so you won’t gain any exposure to small-cap or mid-cap stocks, which tend to grow at faster rates than their large-cap counterparts.
Frequently asked questions about investing in the S&P 500
You can invest only in the S&P 500 if it makes sense for your investing goals. The S&P 500 is widely considered the leading indicator of the US stock market.
The return on $100 invested in the S&P 500 depends on the time frame. Over the long term, the S&P 500 has historically provided around 7% annual returns after inflation, but year-to-year returns can fluctuate dramatically. Assuming you invest $100 in the S&P 500, make no further contributions and let the money grow for 20 years at a rate of 7% each year, $100 invested in the S&P 500 would return around $385.
A stock market index of 500 leading US companies in the most prominent industries of the US economy, the S&P 500 is a great first investment. Index funds that track the S&P 500 are convenient and affordable ways to start investing.
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Here’s what happens to your securities if your brokerage fails, and how your assets are protected by SIPC and FDIC.
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Several ETFs have exposure to Silicon Valley Bank, but it appears minimal.
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Treasury Bills are fixed-income assets with maturities of less than one year. Here’s what to know before investing.
Matt Miczulski is an investments editor at Finder. With over 450 bylines, Matt dissects and reviews brokers and investing platforms to expose perks and pain points, explores investment products and concepts and covers market news, making investing more accessible and helping readers to make informed financial decisions.
Before joining Finder in 2021, Matt covered everything from finance news and banking to debt and travel for FinanceBuzz. His expertise and analysis on investing and other financial topics has been featured on CBS, MSN, Best Company and Consolidated Credit, among others. Matt holds a BA in history from William Paterson University.
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