The S&P 500 is a stock market index comprising 500 leading US companies, and its performance is usually a good reflection of the overall economy. Historical data shows that the S&P 500 has consistently provided solid long-term returns, making it a relatively reliable choice for growing wealth over time. Since adopting 500 stocks in 1957, the S&P 500 has seen an average annualized return of 10.32%.(1)
Learn about the advantages and disadvantages of investing in the S&P 500 and how to add this investment cornerstone to your portfolio.
Being a benchmark for its underlying stocks, you can’t invest directly in the S&P 500 — or any index for that matter. However, there are two methods to invest: buy exchange-traded funds (ETFs) or mutual funds that track the S&P 500 index or buy individual stocks that make up the S&P 500.
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. 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.
Best S&P 500 ETFs
The following table comprises four popular ETFs tracking the S&P 500 index.
| Fund | Year-to-date performance | 5-year performance | Expense ratio | Learn more |
|---|---|---|---|---|
| SPDR S&P 500 ETF (SPY) | 4.20% | 82.68% | 0.0945% | |
| Vanguard S&P 500 (VOO) | 4.18% | 82.70% | 0.03% | |
| iShares Core S&P 500 ETF (IVV) | 4.18% | 82.69% | 0.03% | |
| SPDR Portfolio S&P 500 ETF (SPLG) | 4.20% | 82.65% | 0.02% |
Source: Google Finance. Fund performance and fees accurate as of February 20, 2025
Another option is to buy individual stocks of companies listed in the index, but this isn’t the most economical approach. Unless you invest in a significant number of the constituent stocks, you’ll only capture a portion of the index’s performance.
Besides, managing a portfolio of individual stocks requires significant time and effort to research, analyze and monitor each stock’s performance and financial health. A portfolio of hundreds of stocks would be unmanageable for most. However, investment managers offer this service through a strategy known as direct indexing.
Direct indexing
Direct indexing offers investors a unique way to track the performance of the S&P 500 index while customizing their portfolios to align with personal preferences or values. Instead of purchasing an S&P 500 index fund, direct indexing involves buying individual stocks that mirror the constituents of the S&P 500 index.
This approach allows individuals to have more control over their investments, including the ability to exclude certain stocks or overweight others based on specific criteria. Direct indexing can also offer tax advantages by allowing investors to harvest tax losses or manage capital gains more efficiently.
Examples of investing platforms that offer direct indexing are Frec, Wealthfront, Charles Schwab and Fidelity Investments. Annual advisory fees for these managed accounts typically range from 0.10% to 0.40% annually.
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.(2)
Though known officially as the S&P 500, the index actually contains 503 stocks. The index includes two share classes of stock from News Corp (NWS), Fox Corp (FOX) and Alphabet (GOOGL).(3)
The S&P 500 includes some of the most recognizable and popular stocks in the world. The top ten constituents make up over 36% of the entire S&P 500, with Apple, Nvidia and Microsoft representing over 19% of the total index.(4) This is why when any of these stocks are down, the entire index feels it.
The top 10 constituents of the S&P 500 by index weight as of February 20, 2025 are:
| Company | Ticker symbol | Weight | Learn more |
|---|---|---|---|
Apple Inc. | AAPL | 7.11% | |
Nvidia Corp | NVDA | 6.56% | |
Microsoft Corp. | MSFT | 5.92% | |
Amazon.com Inc | AMZN | 4.07% | |
Meta Platforms, Inc Class A | META | 2.95% | |
Alphabet Inc Class A | GOOGL | 2.08% | |
Broadcom Inc | AVGO | 2.05% | |
Tesla | TSLA | 1.93% | |
Alphabet Inc Class C | GOOG | 1.71% | |
Berkshire Hathaway Inc Class B | BRK-B | 1.70% |
Take a look at the 10-year historical performance of the S&P 500.
March 7, 2025: US stocks seesawed on Friday to cap a volatile week on Wall Street as investors digested a crucial monthly jobs report amid uncertainty driven by President Trump’s trade policy. The S&P 500 gained 0.5%, with the broad-based index posting its worst week since September, according to Yahoo Finance.
February 27, 2025: The S&P 500 and Nasdaq ended sharply lower on Thursday, weighed down by a slump in chipmaker Nvidia after its quarterly report failed to rekindle Wall Street’s AI rally, while investors focused on data pointing to a cooling US economy, according to Reuters.
February 21, 2025: The S&P 500 was down Friday as the stock market reacted to the latest economic data and other controversies, according to TipRanks.
Project the potential growth of investing in the S&P 500 by considering various factors such as initial investment, additional contributions, contribution frequency, expected rate of return, compound frequency and your investment time horizon.
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Investing in the S&P 500 is just a simple as making any other investment. You can either invest in a S&P 500 index fund tracks the entire index performance (like the Vanguard S&P 500 index fund) or you can buy shares of the individual companies that make up the index (like Microsoft, Google and Amazon). The steps to buy are the same:
Yes! If you invest in an index fund there is usually no minimum. If you sign up with a stock broker that offers fractional share trading, then you can also purchase fractional shares of the individual companies that make up the index.
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. Use our investment calculator to get a better idea how much your money might grow and return over time.
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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