How to invest in the S&P 500—4 steps to begin
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Before 1975, buying the S&P 500 required purchasing each stock individually. That changed when Vanguard founder John Bogle introduced the first index fund tracking the S&P 500.
Today, many S&P 500 index funds make it easy to invest in top U.S. companies, often with lower fees than actively managed funds, as they track the index without the need for stock selection.
How to invest in the S&P 500
If you're looking to invest in the S&P 500, then follow these four steps. Click the link in each section to jump ahead.
1. Open a brokerage account. Choose a platform with low fees and tools to help you get started.
2. Choose between an S&P 500 mutual fund or ETFs. ETFs offer flexibility, while mutual funds suit long-term investors.
3. Select an S&P 500 fund that aligns with your goals. Compare performance and fees to pick the right one.
4. Place your trade to start investing. Fund your account, buy the fund, and you're an investor!
Wise Insights: Navigating S&P 500 Investments
- Diverse Investment in Top U.S. Companies: The S&P 500 index includes around 500 leading U.S. companies, offering a broad and diversified exposure to the American corporate sector.
- Accessible Through Funds: While direct investment in the index isn't possible, you can invest via index funds or ETFs that track the S&P 500, providing an easy way to gain exposure to its constituent stocks.
- Accessible Through Funds: While direct investment in the index isn't possible, you can invest via index funds or ETFs that track the S&P 500, providing an easy way to gain exposure to its constituent stocks.
1. Open a brokerage account
If you want to invest in the S&P 500, you'll first need a brokerage account. 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.
Our top investing broker
Public.com offers a wide range of investment options, from stocks and ETFs to crypto and alternative assets like fine art and collectibles — all with very low fees. Investors will appreciate its user-friendly platform and innovative features that make it a one-stop shop for your growing your portfolio.
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.
2. Choose between S&P 500 mutual funds or ETFS
- Mutual funds are designed for long-term ownership. They trade once daily after the market closes and often have a minimum investment amount or holding period, with penalties for early withdrawals. On the upside, mutual funds allow purchases in round dollar amounts, making them straightforward for disciplined, long-term investors.
- ETFs rade like stocks, with prices fluctuating throughout the trading day. They have no minimum holding period and typically no minimum purchase amount beyond the price of a single share. ETFs often have lower expense ratios and can be traded for free on most major brokerage platforms. Brokers like Public.com also offer zero commissions, making ETFs a cost-effective choice for many investors.
For most individuals, ETFs are a more flexible and accessible way to start investing in the S&P 500. However, mutual funds may better suit those seeking a structured, long-term approach. Ultimately, the right choice depends on your investment style and portfolio goals.
S&P 500 Performance Over 5 Years and Today
Compare the performance of the S&P 500 (SPX) and the Vanguard Total Stock Market ETF (VTI) from 2019 to today to explore trends in large-cap stocks versus the broader U.S. equity market.
Looking to take the next step with an individual S&P 500 stock? Check out our buying guides to get started.
3. Select an S&P 500 fund that aligns with your goals
After deciding on your investment vehicle, look for the right fund. Compare the historical performance of each fund to get an idea of expected gains, and consider any fees and associated costs that can reduce your earnings.
The S&P 500 Index tracks the largest companies in the United States. Since these values change over time, the index adjusts accordingly.
Top 10 S&P 500 companies
- Apple Inc (AAPL)
- Microsoft (MSFT)
- NVIDIA (NVDA)
- Amazon (AMZN)
- Meta Platforms (META)
- Berkshire Hathaway B (BRK.B)
- Alphabet Inc. Class A (GOOGL)
- Tesla (TSLA)
- JP Morgan Chase & Co. (JPM)
- Visa Inc. Class A (V)
There are 504 constituents in the S&P 500. There are many different types of stocks in the S&P 500, but they share a few common characteristics:
- Must be located in the United States
- Has a minimum market capitalization of $18 million
- Is listed on a major U.S. stock exchange (NYSE, Nasdaq, etc.)
- Operates in accordance with the U.S. Securities Exchange Act
The company must have traded at least 250,000 shares monthly for the six months before index evaluation, and its earnings must be positive.
4. Place your trade to start investing
Once your account is open and you've selected your fund, you're ready to invest. Fund your account, and with just a few clicks, you'll become an investor in the S&P 500—it’s that simple!
Opening and funding a brokerage account is a straightforward process. After your funds clear, purchasing an S&P 500 index fund is quick and easy. As long as you’re aware of the risks, it’s an excellent first step into the stock market and a great way to start building your investment portfolio.
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.
Pros and cons of investing in the S&P 500
Pros
- Large exposure to a variety of companies
- Historically high returns
- Good for investors who don't want to pick individual stocks
Cons
- 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
The winning formula for success in investing is owning the entire stock market through an index fund, and then doing nothing. Just stay the course.
John C. bogle, The Little Book of Common Sense Investing
How do I invest in the S&P 500 when it’s high?
When the S&P 500 is high, index investing can be a tougher choice. The idea is to buy low and sell high, but that is not always possible, especially with the market constantly shifting.
Even if the market is up when you’re ready to trade, the market to soar to even higher heights over the upcoming years. It’s important to think of investing in the S&P 500 as a long-term play, while leaving the rapid-fire and short-term trading to experienced investors.
Savvy investors track the market and have an account ready for trading so they can act when the time is right. Review the fact sheet and historical performance for each index fund or ETF to ensure it is the right investment for your portfolio.
S&P 500 vs. 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.
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.
The Dow is also 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.
SPY and DIA recent performance
S&P 500 vs. 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.
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.
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.
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.
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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.
Lena Borrelli
Freelance Contributor
Lena Muhtadi Borrelli brings over 20 years of experience in the finance industry. She began her career at Morgan Stanley before transitioning over to media. As a finance writer, she has served as an authority for several respected outlets, including Forbes, TIME, Newsweek, Bankrate, Investopedia, Insurance.com, and InvestorPlace. No matter what she is writing, Lena has a unique ability to simplify complex topics, making finance more approachable and relatable to the average reader. When she is not writing or scanning the news for the latest headlines, she is happiest spending time in the Florida sunshine with her husband and two pups.
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