in our free newsletter.

Thousands benefit from our email every week.


Updated: November 18, 2022

We adhere to strict standards of editorial integrity to help you make decisions with confidence. Please be aware that some (or all) products and services linked in this article are from our sponsors.

Hand is turning a dice and changes the direction of an arrow symbolizing that the S&P500 Index is changing the trend and goes up instead of down (or vice versa)

How to invest in the S&P 500 index

FrankHH / Shutterstock


Updated: November 18, 2022

We adhere to strict standards of editorial integrity to help you make decisions with confidence. Please be aware that some (or all) products and services linked in this article are from our sponsors.

We adhere to strict standards of editorial integrity to help you make decisions with confidence. Please be aware that some (or all) products and services linked in this article are from our sponsors.

October 2022 was a rebound month for the S&P 500 as it finished the month up 8.0%. However, it has still fallen  YTD in 2022. While that can make checking your portfolio balance a painful experience, it also means that long-term investors have a great opportunity to invest in the S&P 500 index while it's essentially “on sale.”

Thankfully, you don't have to buy every single stock in the S&P 500 individually. Instead, you can invest in all the stocks in the index with one purchase via a mutual fund or exchange-traded fund (ETF).

Before 1975, if you wanted to buy the 500 stocks in the S&P 500, you would have had to buy each stock individually. Vanguard founder John Bogle introduced the first-ever index fund in that pivotal year, which tracked the S&P 500.

These days, there are many S&P 500 index funds to choose from. Read on to find out everything you need to know about how to invest in the S&P 500 index.

What is the S&P Index?

Short for Standard & Poor's 500, this index tracks the performance of 500 of the most significant publicly traded stocks in the U.S. While there are many other index funds, the S&P 500 is perhaps the most famous stock market index in the United States.

A committee meets to choose the stocks in the index, and they don't necessarily have to be the biggest 500 companies. The committee looks at things like market capitalization, liquidity, sector, and other criteria. To qualify, a company must be a large-cap company with a minimum $14.6 billion market cap (as of March 2022).

Further reading: How to invest in index funds

How to invest in the S&P 500 Index

The S&P 500 isn't the only index in the U.S. but it's a great place to start investing.

That's because it includes most of the biggest companies in the U.S. And since S&P 500 index funds don't need fund managers to pick and choose the underlying stocks, they tend to have much lower fees than actively-managed mutual funds.

If you're looking to invest in the S&P 500, then follow these steps:

1. Open a brokerage account

If you want to invest in the S&P 500, you'll first need a brokerage account. This could be a retirement account like a traditional IRA or Roth IRA, an employer-sponsored 401(k) or similar, or your own traditional, taxable brokerage account.

There are many brokerages to choose from. Look at fees for buying and selling mutual funds and ETFs if you open a new account intending to invest in the S&P 500. Many brokerages offer their own family of funds or a group of partner funds with no mutual fund trading fees.

Most of the top stock brokers today now offer commission-free trading for U.S.-listed stocks, options, and ETFs. They all provide investors with research and educational tools so that even rank beginners can figure out what to do. Here's a quick comparison of three top platforms.

Highlights E*TRADE Ally Invest TD Ameritrade
Rating 4.5/5 4.4/5 4.4/5
Min. investment $0 $0 $0
Stock trades $0/trade $0/trade $0/trade
Options trades $0.65/contract $0.50/contract $0.65/contract
Crypto trades
Mutual funds
Virtual trading

Read our E*TRADE review.

Read our Ally Invest review.

Read our TD Ameritrade review.

2. Choose between mutual funds or ETFs

You can buy S&P 500 index funds as either mutual funds or ETFs. Both track the same index and work similarly, but there are some key differences you should know about.

  1. 1.

    Mutual funds are intended to be owned for a relatively long period of time. They trade only once per day, after the market close. Some have a minimum investment amount and a minimum length of time to invest. And early withdrawals can lead to penalties. On the positive side, you can buy and sell mutual funds in round dollar amounts.

  2. 2.

    ETFs are bought and sold like a stock. The price constantly changes throughout the day as traders buy and sell. Most major discount brokerage firms allow you to trade all ETFs free. There is no minimum time to hold or minimum purchase amount aside from a single share price. ETFs may have lower expense ratios in some cases as well and can be purchased via brokers like, which is known for its low fees and zero commissions.

For most people, ETFs will be a more attractive way to get started investing in the S&P 500. However, mutual funds have their benefits too. It's up to you to decide which is a better fit for your portfolio.

3. Pick your favorite S&P 500 fund

Once you decide between ETFs and mutual funds, you can start comparing more specific details to pick your favorite fund. Look at any costs and fees to start. You don't want to overpay when you can get essentially the same thing from multiple sources.

Here are the fees for the popular mutual funds:

  • Fidelity charges just 0.015% for its Spartan S&P 500 Index Investor Class shares (FXAIX), with no minimum investment.
  • The Vanguard 500 Index Fund (VFINX) has a 0.14% fee and a $3,000 minimum.

And here are the fees in the world of ETFs:

  • The Vanguard S&P 500 ETF (VOO) costs 0.03%.
  • iShares Core S&P 500 (IVV) costs 0.03% per year.
  • The biggest and oldest S&P 500 ETF is the SPDR S&P 500 ETF (SPY) from State Street Global Advisors with a 0.0945% expense ratio.

4. Enter your trade

When you're ready, log into your brokerage account and enter the trade. We recommend using Ally Invest, as it takes just a few minutes to enter a trade using its mobile app, website, or more advanced trading platform.

5. You're an index fund owner!

It's that simple. Opening and funding a brokerage account is a quick and easy process. Once the funds have cleared, you can buy an S&P 500 index fund in just a few clicks. As long as you understand the risks of investing, it's an excellent first investment and a fun way to get your feet wet in the stock market.

Should you invest in the S&P 500?

While we don't recommend any specific investments at MoneyWise, there are certainly a lot of benefits to investing in the S&P 500. For one, the index offers broad exposure to the companies throughout the U.S. And historically, the index has had great returns for investors, averaging about 10% annually.

Investing in an index or exchange-traded fund can also help you avoid the risks that come with individual stock picking. With the S&P 500, you'll be exposed to a lot of great companies over a variety of sectors, which is great if you're looking to diversify your portfolio.

How does the S&P 500 compare to the DOW?

The Dow Jones Industrial Average (DJIA or Dow) is another stock market index that is closely followed by investors and analysts. Here’s how it compares to the S&P 500 Index.

First, the DOW tracks a significantly smaller selection of stocks — only 30 of the largest U.S. companies are included. It also excludes the utilities and transportation sectors, whereas the S&P 500 includes all sectors. This means that DJIA-tracking funds provide less diversification than S&P 500 index funds.

Second, the Dow is different from the S&P 500 Index in how it weights the companies that are included on its list. The S&P 500 is a float-market-cap-weighted index while the Dow Jones Industrial Average is price-weighted.

The chart below shows how SPY and DIA have performed recently.

As you can see, the Dow outperformed the S&P 500 pre-pandemic, while the S&P 500 has provided better returns since around mid-2020.

How does the S&P 500 compare to the Nasdaq?

When someone talks about investing in “The Nasdaq” they could mean one of two things.

On one hand, they could be referring to the Nasdaq Composite Index, which tracks every company that’s listed on the tech-heavy Nasdaq stock exchange. On the other hand, they could mean the popular Nasdaq-100 Index which, as you may have guessed it, tracks 100 of the largest companies listed on the Nasdaq.

Both the Nasdaq 100 and Nasdaq Composite are market-cap weighted like the S&P 500. However, the Nasdaq 100 doesn’t include any financial companies. Here’s how SPX and QQQ (a popular Nasdaq-100 index fund) have performed over a variety of periods up to five years.

As the chart shows, the Nasdaq-100 enjoyed tremendous growth throughout 2020 and most of 2021. This makes sense as this was during the height of pandemic lockdowns when many Nasdaq-listed tech stocks were experiencing explosive growth. However, the Nasdaq-100’s decline in 2022 has so far been steeper than the S&P 500’s.

How does the S&P 500 compare to the total stock market index?

The key difference between the S&P 500 and the total stock market index is that the S&P 500 only includes large cap stocks, while the total stock market index includes large cap, mid cap, and small cap stocks. For this reason, the total stock market index is often seen as a more representative measure of the stock market than the S&P 500.

However, in reality, these indexes have provided nearly identical stock market performance over time. The chart below compares Vanguard's S&P 500 ETF (VOO) and its total stock market ETF (VTI). As you can see, the lines are so similar, it's often hard to even tell them apart.

Pros & cons of investing in the S&P 500



  • Large exposure to a variety of companies
  • Historically high returns
  • Good for investors who don't want to pick individual stocks


  • Can only invest in large-cap companies
  • Index gives higher weight to companies with bigger market caps
  • Like any stock investing, can be highly volatile


Investing in the S&P 500 can be a great option if you want exposure to some of the biggest companies in the U.S. It's one of the best-known indexes and most of the best stock brokers offer low-cost S&P 500 mutual funds and ETFs.

But while the S&P 500 is a great foundational investment choice for most portfolios, you may want to consider adding other investments as well such as a Total Stock Market Index fund, a Small-Cap fund, or even some individual stocks. 

Learn more about how diversify your portfolio.

About our author

Eric Rosenberg
Eric Rosenberg, Freelance Contributor

Eric Rosenberg is a finance, travel and technology writer in Ventura, California. He is a former bank manager and corporate finance and accounting professional who left his day job in 2016 to take his online side hustle full time. He has in-depth experience writing about banking, credit cards, investing and other financial topics and is an avid travel hacker. When away from the keyboard, Eric enjoys exploring the world, flying small airplanes, discovering new craft beers and spending time with his wife and little girls.


The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.