Discount brokers, who offer commission-free trading on all passive ETF products, are a good place to start if you want to invest in S&P 500 ETFs on a budget. However, you should be aware that some brokers may have minimum investment requirements. S&P 500 index funds can be purchased directly from the fund companies or through brokers and discount brokers. Some investors prefer to manage their portfolios through an advisor or a broker, while others prefer to handle a portfolio of funds held by a single mutual fund provider. Mutual funds and ETFs are also available through 401(k) plans, individual retirement accounts, and robo-advisor platforms.
Is it possible to purchase the S&P 500 ETF?
S&P 500 index funds are available as mutual funds or exchange-traded funds (ETFs). Both track the same index and function similarly, but there are a few crucial distinctions to be aware of. Mutual funds are designed to be held for an extended period of time. They only trade once a day, after the market has closed.
How can I purchase S&P 500 stock?
The S&P 500 is a stock market index that measures the performance of 500 of the largest publicly traded companies in the United States based on their market capitalization (the total value of all their outstanding shares). With a market value of almost $39 trillion, this index accounts for nearly 85% of the US stock market’s total capitalisation.
Understanding the direction and performance of the S&P 500 can give you an instant insight on how the overall market is behaving due to its sheer size. It also makes buying assets that attempt to replicate the S&P 500 an ideal strategy to diversify your stock portfolio.
“You’ll outperform an active portfolio manager picking large-cap stocks 90% of the time if you purchase the S&P 500,” says Joe Favorito, managing partner at Landmark Wealth Management.
Buying exchange-traded funds (ETFs) or index funds that track the S&P 500 is the best way to invest in it. There are some distinctions between these two systems, which we’ll go into later, but both offer incredibly low expenses and improved diversity.
Is it possible to buy the S&P 500 directly?
You can’t invest directly in the S&P 500 because it’s a stock market index rather than a single stock. However, there are passive investment choices that mirror the performance of the S&P 500. Here are two examples:
The key distinction between an ETF and an index fund is that an ETF, like a stock, can be exchanged at any time of day. Index fund shares, like all mutual fund shares, are valued and traded at the conclusion of each trading day.
Getting Started
To invest in the S&P 500, you must first open an account with a brokerage business like Scottrade, E-Trade, Fidelity, Charles Schwab, or TD Ameritrade. Most brokerages have easy-to-use online platforms where you can purchase and sell a variety of investments for a charge per transaction. If you have a 401(k) or an IRA, the same site where you access and manage your account will most likely have brokerage services available.
How do I purchase Vanguard S&P 500?
The Vanguard S&P 500 Mutual Fund has a $3,000 minimum purchase, or $2,000 if you buy it in an educational savings account, which has a $2,000 minimum. It is possible to make further purchases for as low as $100. By integrating your bank account, you can set up future automated purchases. Dividends and capital gains can also be re-invested into further shares of the fund.
Is it wise to put money into the S&P 500?
S&P 500 funds are among the world’s largest index funds. The Fidelity 500 Index Fund (FXAIX) is the world’s second largest mutual fund by assets managed, while the iShares Core S&P 500 Fund is the world’s largest ETF by the same metric.
Almost all of the largest and most popular S&P 500 index funds are ideal for investors looking for broad market exposure without having to pick and manage individual stocks. Especially if these funds have a low expenditure ratio or charge.
Index funds’ expense ratios have practically zeroed out as a result of their popularity, making S&P 500 funds an affordable and historically reliable long-term investment. It’s also made it quite simple to register an account and begin investing, even if you’re a complete novice.
Why is the S&P 500 a good investment?
Although “enough” is a subjective phrase, we can readily see why the S&P 500 is sufficient for most people:
- It’s well-balanced. When you buy the S&P 500 as a single security, you benefit from rapid and broad diversification. In other words, you spread your risk over a variety of industries, avoiding the company-specific hazards that come with holding single stock positions. If you simply own a few single equities, you risk under-diversifying and leaving yourself vulnerable to higher losses than you’re willing to tolerate.
- It’s a very low-cost option. The low cost of an S&P 500 fund is one of its most appealing features. You’ll benefit from preserving virtually all of your investment return because an S&P 500 fund costs so little to buy and hold (0.00 percent to 0.05 percent yearly). You may lose more money while paying for the privilege if you invest in products with higher fees and fewer holdings. Investing in an S&P 500 fund ensures that your costs are under control and that you keep all of your investment returns.
- It does not necessitate continual management. There’s no incentive to touch or even watch your S&P 500 fund over time, except from the occasional portfolio rebalancing. This is the essence of passive management: you don’t have to do anything unless your entire risk profile has altered or if one portion of your portfolio outperforms or underperforms significantly over a period of time. The S&P 500 index is the ideal set-it-and-forget-it investment, so you won’t have to spend any time researching the market or worrying about technical analysis.
- It has a proven track record. The S&P 500 has averaged roughly 10% yearly returns over the last 30 years. While it isn’t quite explosive, it has shown to be remarkably reliable over time. The index has effectively hedged against inflation while also providing excess return, so calling it an old-fashioned manner of investing isn’t justified. Even better, if you invest for long enough, a 10% yearly compounded return may turn even little assets into seven-figure portfolios.