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.
How to invest in the S&P 500
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.
1. Buy an S&P 500 index fund
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 performance and fees accurate as of June 13, 2024
2. Buy individual S&P 500 stocks
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.
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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.
What is the S&P 500?
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)
What companies are in the S&P 500?
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 Microsoft, Nvidia and Apple representing over 21% 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 June 13, 2024 are:
Take a look at the 10-year historical performance of the S&P 500.
Latest S&P 500 updates
November 15, 2024: US stock futures fell on Friday morning as the postelection rally wavered and the Federal Reserve signaled it was in no hurry to keep cutting interest rates. S&P 500 futures slipped about 0.59%, according to CNBC.
October 29, 2024: US stocks traded mixed on Tuesday as investors digested new data on job openings and absorbed a fresh wave of earnings ahead of Alphabet’s results. The benchmark S&P 500 rose roughly 0.1% after initially opening the day lower, according to Yahoo Finance.
October 21, 2024: The S&P 500 closed lower on Monday, retreating from Friday’s record high closes and six straight weekly gains as Treasury yields rose and investors wary of high valuations awaited earnings from major companies., according to Reuters.
S&P 500 calculator
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.
Pros and cons of investing in the S&P 500
Pros
Exposure to America’s leading companies. Gain exposure to America’s most influential companies, including Apple, Microsoft, Amazon and Tesla, with a single purchase.
Instant diversification. Buying a single share of an S&P 500 index fund will give you exposure to the stocks of all its underlying companies, immediately diversifying your portfolio.
Competitive long-term performance. Over the past 25 years, the S&P 500 has produced total returns of 9% — or 6.8% when adjusted for inflation.(5)
Ease of investing. Buying shares of an S&P 500 index fund limits the time you need to spend researching and gets you in the market quicker.
Cons
It includes only US companies. The S&P 500 includes only stocks of US companies and excludes companies in other parts of the world.
It includes only large-cap companies. The S&P 500 includes only large-cap stocks, so you won’t gain any exposure to small-cap or mid-cap stocks, which tend to grow at faster rates than their large-cap counterparts.
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Frequently asked questions
How should a beginner invest in the S&P 500?
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:
Choose an online stock trading platform. Choose from our table above or jump straight to the best stock trading apps of 2024.
Sign up for an account. Provide your personal information and sign up.
Set up a funding method to pay for the transaction. Deposit funds into your account by linking your banking information.
Choose the stocks or ETF you want to buy. Search for the stock or index fund by name or ticker symbol.
Place your order. Buy the stock. It’s that simple.
Can I invest $100 in the S&P 500?
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.
What would $100 invested in the S&P 500 return?
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.
Is the S&P 500 a good first investment?
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.
Matt Miczulski is an investments editor at Finder. With over 450 bylines, Matt dissects and reviews brokers and investing platforms to expose perks and pain points, explores investment products and concepts and covers market news, making investing more accessible and helping readers to make informed financial decisions.
Before joining Finder in 2021, Matt covered everything from finance news and banking to debt and travel for FinanceBuzz. His expertise and analysis on investing and other financial topics has been featured on CBS, MSN, Best Company and Consolidated Credit, among others. Matt holds a BA in history from William Paterson University. See full bio
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