Consider buying into the fund over a period of time using a method known as dollar-cost averaging. By doing this, you’re spreading out buy points and avoiding the practice of “timing the market.” This approach can help you take advantage of any market downturns that happen on occasion. While we adhere to strict
editorial integrity,
this post may contain references to products from our partners. Both the Nasdaq 100 and Nasdaq Composite are market-cap weighted like the S&P 500.
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. 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.
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This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. There is no guarantee that any strategies discussed will be effective. If you’re investing in individual stocks, you’ll just need to pay the cost of the share, which varies by company—you’ll find some for under $100 and others for $350+.
So an index fund is a passively managed investment, only adjusting its holdings when the underlying index changes. Bankrate follows a strict
editorial policy, so you can trust that our content is honest and accurate. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. 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.
Other large sectors in the S&P 500 are consumer discretionary (10.1%) and industrials (8.7%). An estimated $15.6 trillion is indexed or benchmarked to the S&P 500, with indexed assets comprising about $7.1 trillion of this total as of Dec. 31, 2021. In contrast, the Dow Jones Industrials contains just 30 companies, while the Nasdaq 100 contains about 100 companies.
After you’ve selected your index fund, you’ll want to access your investing account, whether it’s a 401(k), an IRA or a regular taxable brokerage account. These accounts give you the ability to purchase mutual funds or ETFs, and you may even be able to buy stocks and bonds later, if you choose to do so. The consistently strong returns of the S&P 500 make an ETF or mutual fund tied to the index a comparatively safe and affordable investment option. Index funds are mutual funds that also mimic the performance of a particular stock index. As mentioned earlier, ETFs trade like stocks throughout the trading day, while mutual funds don’t price until the end of the day.
If you don’t have a lot of capital, look for a firm that offers low-fee trading options. But what if you’re looking to invest in S&P 500 stocks and don’t have the temperament to sift through and analyze 500 companies? You may want to consider an S&P 500 index fund or exchange traded fund (ETF) to help you gain exposure to all those stocks. Buying an S&P 500 index fund can be a wise decision for your portfolio, and that’s one reason that Warren Buffett has consistently recommended it to investors.
But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. The S&P 500, also known as the Standard & Poor’s 500 or S&P, is a stock index that includes some of the biggest and best-known companies in the United States. Because it is made up of large corporations across multiple industries, it is often used as a proxy for the overall stock market.
While we don’t recommend any specific investments at Investor Junkie, 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.
This means that DJIA-tracking funds provide less diversification than S&P 500 index funds. For most people, ETFs will be a more attractive way to get started investing in the S&P 500. Both track the same index and work similarly, but there are some key differences you should know about. Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date.
Investing in the S&P 500 with a mutual fund
“When you buy the S&P 500, 90% of the time you’re likely to outperform an active portfolio manager picking large-cap stocks,” says Joe Favorito, managing partner at Landmark Wealth Management. Options trading entails significant risk and is not appropriate for all investors. Before trading options, please read Characteristics and Risks of Standardized Options.
- This is a great option for investors who don’t want to remember to place a regular trade.
- Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided.
- Here’s how SPX and QQQ (a popular Nasdaq-100 index fund) have performed over a variety of periods up to five years.
- S&P 500 ESG (Environmental, Social, and Governance) Indexes apply ethical criteria to the way companies in the S&P 500 operate and adjust the makeup of the index accordingly.
Once you’ve figured out how much you can invest, move that money to your brokerage account. Then set up your account to regularly transfer a desired amount each week or month from your bank. Or you can set up your 401(k) account to move money from each paycheck. You don’t have to be wealthy to begin investing, but you should have a plan. And that plan begins with figuring out how much you’re able to invest.
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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. Once you decide between ETFs and mutual funds, you can start comparing more specific details to pick your favorite fund. You don’t want to overpay when you can get essentially the same thing from multiple sources. 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).
Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products.
- This can help you figure out how much money you can afford to pay your brokerage firm when it comes to fees and commissions.
- Consider buying into the fund over a period of time using a method known as dollar-cost averaging.
- For such overseas investors, the obvious currency risk (which can be hedged) is more than offset by the stellar long-term performance record of the S&P 500.
- If you’re still on the fence about an index ETF or fund, consider how long it would take for you to do your research on each stock.
- The best way to invest in the S&P 500 is to buy exchange-traded funds (ETFs) or index funds that track the index.
The S&P 500 index on which these funds are based has returned an average of about 10 percent annually over time and represents hundreds of America’s best companies. With an S&P 500 index fund you own the market, instead of trying to beat it. Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first.
This is so they can match the performance of the index as closely as possible. Depending on their risk tolerance, investors outside the U.S. should generally have some exposure to the U.S. equity market as part of a diversified portfolio. For such overseas investors, the obvious currency risk (which can be hedged) is more than offset by the stellar long-term performance record of the S&P 500. The expense ratio for ETFs is the overall annual cost paid to the fund manager by investors. Be sure to approach anything greater than 1.5% with caution as funds that charge these expense ratios are considered high.
Index funds allow you to invest money on an automated recurring basis, but if you’d prefer to invest manually you could go with an S&P 500 ETF. The best way to invest in the S&P 500 is to buy exchange-traded funds (ETFs) or index funds that track the index. There are differences between these two approaches that we’ll examine below, but in either case, these funds offer extremely low costs and superior diversification. S&P 500 index ETFs and mutual funds pay dividends to the constituent companies. The S&P 500 index has a dividend yield of about 1.66% as of April 2023. Although cost is an important factor, don’t forget to look at the performance of the fund.
Vanguard introduced individual investors to the U.S.’s first mutual fund in 1976. The first ETF was introduced by a subsidiary of AMEX 17 years later, allowing investors to begin tracking the index. The less you’re able to invest, the more important it is to find a broker that offers you low fees, because that’s money that could otherwise go into your investments.
You’ll want to add money regularly to the account and aim to hold it there for at least three to five years to allow the market enough time to rise and recover from any major downturns. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy.
In general, the benefits of investing in the S&P 500 outweigh the disadvantages. But “if you wanted all of the S&P 500 stocks, it would be very tedious and expensive to purchase them this way,” says Aviva Pinto, managing director at Wealthspire Advisors. There is an Options Regulatory Fee that applies to both option buy and sell transactions. Below, we’ve listed some of the most common pros and cons of investing in this index.