If you’re wondering how to invest in the S&P 500 index, we’re going to explain everything you need to know. This has been a popular choice for investors for good reason, but how and where do you actually invest in it?
What is the S&P 500?
The Standard and Poor’s 500 (S&P 500) is a stock market index that includes 500 of the largest companies in the United States. Because it includes companies that span across most market sectors, it’s viewed as a good indicator of the greater US stock market.
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Why invest in the S&P 500?
Investing in the S&P 500 index means that you can own shares in some of the best companies in America with just one investment.
Here are three great reasons for investing in the S&P 500:
1. Simple and cheap
Investing in the whole index is straightforward. Also, it usually means ongoing fees are low because it is not an actively managed fund.
2. Diverse selection of companies
Choosing this whole index will give you a lot more diversification than if you were to just pick a handful of US companies to invest in.
3. Track record of great performance
Prior to the outlier downturn in 2022, the historical returns of the S&P 500 have averaged about 9% per year. This is obviously a very tasty return, but keep in mind that past performance may not lead to similar future results. As we’ve seen this year, the stock market is volatile and affects indexes all over the world.
What are the drawbacks of investing in the S&P 500?
While investing in S&P 500 stocks comes with a lot of advantages, there are also some drawbacks to consider. Greater exposure to the technology industry has helped pave the way to superior returns, but its also introduces significantly higher levels of volatility. And this trend has only intensified over time.
Since the S&P 500 is weighted based on market capitalisation, the biggest US tech stocks now dominate. In fact, eight of the largest 10 companies operate within the tech industry. Overall, this sector represents close to a third of the total.
Consequently, despite an investment being indirectly diversified across 500 companies, a portfolio would still be fairly concentrated. This is why the S&P 500 has been significantly more volatile than indices such as the UK’s FTSE 100 over the last decade.
What are the top 10 S&P 500 stocks?
In order of market capitalisation, the 10 largest companies currently dominating the S&P 500 as of October 2024 are:
| Company | Industry | S&P 500 Weighting |
| Apple Inc | Computers/Peripherals | 7.14% |
| Nvidia Corp | Semiconductor | 7.03% |
| Microsoft Corp | Software (System & Application) | 6.43% |
| Amazon.com Inc | Retail (Online) | 3.54% |
| Meta Platforms Inc | Software (Entertainment) | 2.52% |
| Alphabet Inc (Class A) | Software (Entertainment) | 1.94% |
| Berkshire Hathaway (Class B) | Diversified | 1.71% |
| Broadcom Inc | Semiconductor | 1.62% |
| Alphabet Inc (Class C) | Software (Entertainment) | 1.61% |
| Tesla Inc | Auto & Truck | 1.47% |
What is the best way to invest in the S&P 500?
The most common way to invest in this index is through a fund.
Investing in an S&P 500 index fund isn’t really something that needs a lot of maintenance because it should all be arranged automatically. So it’s definitely an investment you can manage yourself. Your only options are to buy or sell the fund.
This is usually done as an exchange-traded fund (ETF). An ETF just means that the fund is available on multiple platforms and exchanges.
How you invest in the S&P 500 will be very similar across all platforms. So, it’s important that you aim for a fund with low fees. All platforms should contain the same companies.
What are the most popular funds?
It’s important to remember that S&P 500 funds should be tracking the same index. This means that any difference in returns should be marginal.
Nevertheless, some are cheaper than others, and there are a few that tend to be very popular amongst investors, such as:
- iShares Core S&P 500 UCITS ETF
- Vanguard S&P 500 UCITS ETF
- Invesco S&P 500 UCITS ETF
Bear in mind that some investment companies might call their fund something like ‘The America 500’ fund. This is to avoid paying licensing fees and keep their costs down. Although these can be the same as ‘official’ S&P 500 index funds, it’s always worth double-checking exactly what’s in the fund you’re buying.
What is the minimum investment for the S&P 500?
When investing with funds, minimum investment requirements can creep into the picture. As the name suggests, a minimum investment requirement forces investors to put a minimum amount of capital into a fund in order to invest.
Depending on which index fund, the minimum investment requirement will vary. However, in most cases for index trackers, there isn’t one beyond the share price of the fund itself, especially for an ETF.
For example, the iShares Core S&P 500 UCITS ETF does not have a minimum investment requirement. However, at a share price of around $600 (£463), investors must have at least $600 to start investing in the S&P 500 with this index tracker.
Alternatively, the Vanguard S&P 500 UCITS ETF offers effectively the same access to investing in the S&P 500 but since the share price is currently around £85, it’s far more accessible to investors with smaller sums of capital.
Where can I invest in the S&P 500?
Common ways to invest in this popular index are:
- Using a share dealing platform or brokerage
- With a robo-advisor
- Through a financial advisor
The cheapest way is to do it yourself through a platform. This will be the preferable option for most people because it is quite a simple investment to purchase and manage.
An investing solutions provider may be difficult to organise because they choose the investments and a financial adviser is likely to be more expensive with no real added benefit.
How do I invest in the S&P 500 in the UK?
There are three simple steps to follow to get your investment up and running:
1. Research which funds you want to buy and check the cost. This is sometimes called the total expense ratio (TER) and will be shown as a percentage.
2. Find a share dealing platform that has the funds and open an account. Ideally, you want to use a stocks and shares ISA to shield your S&P 500 investment from tax.
3. Deposit money into your account and purchase the fund. Most platforms should allow you to use a lump sum or invest a regular monthly amount to dollar-cost-average.
Please note that tax treatment depends on the specific circumstances of the individual and may be subject to change in the future.
Should I invest in the S&P 500?
If you want a straightforward, low-cost investment that gives you access to some of America’s best companies, then this might be a great pick. The whole index contains companies of different sizes from various industries. Which is what you want in a diversified portfolio.
However, although you get some diversification, it is heavily reliant on the US. Many of the companies will operate internationally but are still influenced by what happens in America. What happens with the dollar or politics can really impact the S&P 500.
Because the index is weighted by market capitalisation, most of your investment goes to the biggest companies. This can work against you sometimes, as these large companies have already seen a lot of growth. Meanwhile, the smaller cap companies can see bigger gains.