How To Invest in the S&P 500: A Beginner’s Guide for 2024

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A manus is shown holding a magnifying solid to a puzzle piece, alluding to really nan S&P 500 is an scale that offers a person look astatine nan banal marketplace arsenic a whole.

Investing successful nan S&P 500

The S&P 500 is an scale that tracks nan 500 largest companies successful nan U.S. by marketplace capitalization. You can’t straight put successful nan scale itself, but you tin buy individual stocks of S&P 500 companies, aliases bargain a S&P 500 scale money done a communal money aliases ETF. The second is perfect for beginner investors since they supply wide marketplace vulnerability and diversification astatine a debased cost.

The S&P 500 is an index that tracks nan 500 starring companies by marketplace capitalization successful nan U.S. While you can’t straight put successful nan scale itself, location are 2 wide options for investing successful nan S&P 500: done individual stocks aliases done an scale fund, specified arsenic a communal money aliases exchange-traded money (ETF). 

In this article, we’ll screen nan following: 

  • What is nan S&P 500?
  • How to put successful nan S&P 500: scale ETFs vs. scale communal funds
  • Investing successful nan S&P 500 pinch an scale fund
  • Investing successful nan S&P 500 pinch an ETF
  • Pros and cons of investing successful nan S&P 500
  • How to put successful nan S&P 500: FAQs

Read connected to study really to put successful nan S&P 500. 

What is nan S&P 500?

Illustrated icons travel a breakdown of what each investor  should cognize astir investing successful nan S&P 500.

If nan U.S. banal marketplace is simply a elephantine jigsaw puzzle, you tin deliberation of an scale arsenic a magnifying glass. In nan lawsuit of nan S&P, nan magnifying solid offers a person look astatine nan 500 biggest, astir salient pieces of nan puzzle, giving you a clearer image of nan banal marketplace arsenic a whole. 

A banal marketplace index, then, is simply a measurement of a market. Specifically, an scale is simply a instrumentality (like a magnifying glass) utilized to analyse what’s happening successful a banal market. The S&P 500 is 1 of nan astir wide utilized proxies for nan wide wellness of nan banal market—the stocks forming nan S&P 500 correspond astir 80% of nan market’s disposable market capitalization.

The S&P 500 includes companies crossed nan spectrum, from power to wellness care. Here are nan apical 10 companies successful nan S&P 500 by index weight arsenic of March 2024: 

  1. Microsoft
  2. Apple
  3. NVIDIA Corporation
  4. Amazon
  5. Meta Platforms Inc (class A)
  6. Alphabet (class A)
  7. Berkshire Hathaway Inc. (class B)
  8. Alphabet (class C)
  9. Eli Lilly & Co.
  10. Broadcom Inc.

Most of these companies autumn into 3 main sectors: accusation exertion (28.9% of nan S&P), financials (13%), and wellness attraction (12.6%). These 3 sectors relationship for almost half of nan S&P 500.

So, really do you put successful nan S&P 500? For caller investors, nan champion measurement is done an ETF aliases communal fund. While location are immoderate differences betwixt nan 2 that we’ll explicate below, costs are a low-cost measurement to summation vulnerability to nan S&P 500 and supply instant diversification to your portfolio. 

Investor tip: When learning really to put successful nan S&P 500, we urge buying a money complete hand-picking individual stocks. Here’s why: investing crossed each sectors and securities wrong nan scale diversifies your investments and your risk, which minimizes nan effects of marketplace volatility.

Utilizing a buy-and-hold strategy will let you to participate successful nan maturation of nan marketplace complete time. Historically nan S&P 500 has yielded an annualized mean return of 11.28% (from 1950 – 2023)

How to put successful nan S&P 500 scale fund: communal costs vs. ETFs 

An illustrated floor plan is shown comparing cardinal differences betwixt investing successful an scale communal money versus an index-based ETF, a cardinal constituent to learning really to put successful nan DJIA.

Since nan S&P 500 is simply a measurement of its underlying stocks’ performance, you can’t put successful it directly—instead, you tin bargain S&P 500 scale costs done either a mutual money aliases ETF that strives to lucifer nan capacity of nan S&P 500 marketplace index.

A mutual fund is simply a handbasket of hundreds of stocks, securities, and different assets wrong a azygous fund. Instead of purchasing a azygous stock, an investor tin acquisition a azygous stock of nan money and you’ll person vulnerability to each nan underlying investments it contains, providing instant diversification for your portfolio. 

ETFs and communal costs some purpose to mimic nan capacity of an scale for illustration nan S&P 500, but location are a fewer differences betwixt nan two. 

Investing successful nan S&P 500 pinch a communal fund

Mutual costs that way nan S&P 500 usually see astir (if not all) of nan stocks from nan 500 companies comprising nan S&P. This is truthful they tin lucifer nan capacity of nan scale arsenic intimately arsenic possible. 

There are galore S&P 500 index-based communal costs to take from, but nan pursuing criteria tin thief guideline your selection: 

  • Minimum investment: scale costs will person varying minimum investments, truthful beryllium judge to cheque that nan minimum magnitude aligns pinch really overmuch you person to invest. 
  • Expense ratio: since scale costs are passively managed, nan disbursal ratio (the ongoing costs of holding nan investment) tends to beryllium low. You tin look up nan disbursal ratios for costs astatine www.morningstar.com. 
  • Dividend yield: if your scale money comes pinch dividends, which galore do, beryllium judge to comparison nan dividend output (the magnitude investors are paid successful dividends). Some whitethorn beryllium higher than others, and capitalizing connected dividends is simply a awesome measurement to boost returns. 

Purchasing an S&P 500 index-based communal money is simply a reasonably elemental process. Here’s really to do it:  

  1. Open an finance account: you tin motion up pinch a accepted brokerage aliases done a robo-advisor.  At Stash, we connection some DIY investing and automated investing.
  2. Add funds: decide really overmuch superior you’re capable to put and adhd nan costs to your account. 
  3. Choose and bargain your scale fund: once you’ve decided connected an scale fund, acquisition it done your brokerage account. 

If you don’t person a batch of superior to put upfront, beryllium judge to shop astir for brokerage accounts that meet your needs and align pinch your budget—there are galore disposable that connection low-fee trading options. 

Investing successful nan S&P 500 pinch an ETF

Like scale communal funds, ETFs let investors to excavation their money successful a money made up of stocks, bonds, and different assets. Unlike communal funds, however, which tin only beryllium traded erstwhile a time astatine nan extremity of each trading day, ETFs tin beryllium traded for illustration a stock—meaning their stock prices tin up and down passim nan trading day. 

There are different types of ETFs, and not each of them way a peculiar index. Some ETFs correspond to a peculiar sector, industry, aliases market. To put successful nan S&P 500 pinch an ETF, you’d want to acquisition an index-based ETF. The cardinal factors of investing successful an ETF aren’t overmuch different from that of a communal fund:

  • Minimum investment: successful galore cases, ETFs will person a little minimum finance than communal funds—sometimes, you mightiness only request to salary nan magnitude of a azygous stock to get started. 
  • Expense ratio: ever comparison disbursal ratios for ETFs you’re considering, and look for 1 pinch nan lowest disbursal ratio possible. You tin look up nan disbursal ratios for ETFs astatine www.morningstar.com.
  • Dividend yield: comparison nan dividend yields of ETFs you’re considering, and guarantee it’s arsenic precocious arsenic imaginable to boost your returns. 

Follow these steps to bargain an ETF: 

  1. Open an finance account: you tin sign up pinch a accepted brokerage aliases done a robo-advisor for illustration Stash, wherever you’ll find galore ETFs to take from. 
  2. Add funds: decide really overmuch money you’re capable to put and adhd nan costs to your account. 
  3. Choose and bargain your ETF: once you’ve decided connected an ETF, acquisition it done your brokerage account. Be judge to usage nan cardinal criteria listed earlier to comparison disbursal ratios and dividend yields.

Pros and cons of investing successful nan S&P 500

A comparison floor plan is shown breaking down nan pros and cons of investing successful nan S&P 500.

Investing successful nan S&P 500 is simply a celebrated measurement to build wealthiness for caller and seasoned investors alike, and for bully reason—in nan lawsuit of an S&P 500 scale money aliases ETF, you summation vulnerability to nan world’s starring companies without spending hours researching individual stocks. If you’re still connected nan fence, here’s a look astatine nan main pros and cons of investing successful nan S&P 500.

Pros

In general, nan benefits of investing successful nan S&P 500 outweigh nan disadvantages. 

  • Consistent semipermanent returns: the S&P 500 has historically provided accordant yearly returns complete nan agelong term—from 1950 to 2023, it has yielded an annualized mean return of 11.28%.
  • Instant diversification: if you put pinch an scale fund, you summation vulnerability to an array of companies, industries, and sectors that instantly diversify your portfolio. 
  • No investigation aliases anterior finance knowledge required: investing successful nan S&P 500 done an scale money aliases ETF intends nary intensive stock-picking investigation is required. 

Cons

While nan benefits of investing successful nan S&P 500 outshine nan drawbacks, location are still a fewer to beryllium alert of. 

  • Dominated by large-cap companies: since chiefly large-cap companies predominate nan S&P 500, it won’t supply vulnerability to galore small-cap aliases mid-cap stocks, moreover erstwhile investing successful S&P scale funds.
  • Short-term volatility: while nan S&P 500 historically provides beardown yearly returns complete nan agelong term, it’s not immune to marketplace volatility. Investors must beryllium capable to tummy short-term value swings and moreover sustained periods of marketplace downturn for illustration a bear market.
  • No vulnerability to world companies: since nan S&P 500 only includes U.S.-based companies, it won’t supply banal vulnerability to companies successful different parts of nan world. This is little of a interest for caller investors, but spreading your portfolio crossed different regions is different diversification strategy. 

When held for nan agelong term, an S&P 500 finance tin beryllium a halfway holding of immoderate portfolio—particularly for caller investors looking to build wealthiness for nan future. With vulnerability to immoderate of nan astir move companies successful nan U.S. and a history of beardown returns complete time, there’s nary logic to put disconnected investing successful nan S&P 500.

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FAQs astir really to put successful nan S&P 500

Still person questions astir really to put successful nan S&P 500 index? Find answers below. 

Should I put successful nan S&P 500 scale done an ETF aliases communal fund? 

One of nan main differences betwixt index-based ETFs and communal costs is that ETFs thin to require a little minimum finance to get started. For caller investors without overmuch superior to put upfront, an S&P 500 ETF is simply a low-cost option. 

What is nan minimum finance for nan S&P 500?

For an S&P 500 scale fund, galore travel pinch nary minimum investment. For an S&P 500 ETF, you mightiness request to salary nan afloat value of a azygous share, which is mostly upwards of $100—but immoderate robo-advisors for illustration Stash connection fractional shares for arsenic small arsenic $5. 

If you’re investing successful individual stocks, you’ll conscionable request to salary nan costs of nan share, which varies by company—you’ll find immoderate for nether $100 and others for $350+. 

Can you put successful nan S&P 500 pinch individual stocks?

Yes. If you don’t want a communal money aliases ETF, you tin hand-select individual stocks of companies you want to put in. If you wish to way nan S&P 500 precisely you whitethorn request to acquisition up to 500 different companies which tin beryllium costly and time-consuming. Keep successful mind that investing successful a azygous institution increases nan consequence and volatility of your investment, and will require thoughtful investigation and banal capacity analysis.

Can you put successful nan S&P 500 arsenic a non-U.S. investor? 

Yes. While nan S&P 500 is an scale of U.S. companies only, location are nary restrictions arsenic to who tin put successful it. 

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