TL;DR: How to invest in the S&P 500: you cannot buy the index itself, but you can buy a low-cost fund that tracks it. Open a brokerage or retirement account, pick an S&P 500 index fund or ETF (popular choices include VOO, IVV, SPYM, SPY and Fidelity’s FXAIX), decide how much to invest, and buy, ideally on a regular schedule. Focus on low fees, invest money you will not need for at least five years, and expect big drops along the way. This guide is educational, not personal financial advice.
The S&P 500 is the benchmark most people mean when they say “the market,” and owning it through a fund is one of the simplest ways to invest in hundreds of large US companies at once. If you have been wondering how to invest in the S&P 500 but do not know where to start, this step-by-step guide covers what the index is, the main ways to buy it, how the most popular funds compare on cost, and the mistakes to avoid.
What is the S&P 500?
The S&P 500 is a stock market index of about 500 large US companies, maintained by S&P Dow Jones Indices. A committee chooses members using rules on size, profitability and how many shares trade, and the index is weighted by market value, so the biggest companies have the most influence on its moves.
An index is just a measuring stick, so you cannot invest in it directly. Instead, fund companies build portfolios that hold the same stocks in the same proportions. When you buy one of those funds, you own a small slice of every company in the index. If index investing is new to you, our guide on how to invest in index funds explains the basics.
3 ways to invest in the S&P 500
1. S&P 500 ETFs
Exchange-traded funds trade on the stock market like shares, at prices that change throughout the day. Most brokers let you buy them commission-free, and many now offer fractional shares, so you can start with a small amount.
2. S&P 500 index mutual funds
Mutual funds are bought directly from a fund company or through a broker at the end-of-day price. They make automatic monthly investing easy, though some have minimum investments.
3. Through a workplace retirement plan
Many 401(k) and similar plans include an S&P 500 index fund option. If your employer matches contributions, investing there first can be one of the best deals available.
How to invest in the S&P 500, step by step
- Get your basics in place. Pay off high-interest debt and build an emergency fund first. A sinking fund helps you save for known expenses so you are not forced to sell investments.
- Choose an account. A tax-advantaged retirement account (like an IRA or 401(k) in the US) or a regular taxable brokerage account.
- Pick a broker or fund company. Look for no account fees, commission-free trades and fractional shares.
- Choose your fund. Compare expense ratios using the table below.
- Decide how much and how often. Many beginners use dollar-cost averaging, investing a fixed amount on a schedule regardless of price.
- Place the order. Search the ticker, enter a dollar amount or number of shares, and buy.
- Turn on dividend reinvestment. This automatically uses payouts to buy more shares.
- Leave it alone. Review once or twice a year, not every day.
Popular S&P 500 funds compared
| Fund | Ticker | Type | Expense ratio |
|---|---|---|---|
| Fidelity 500 Index Fund | FXAIX | Mutual fund | 0.015% |
| SPDR Portfolio S&P 500 ETF | SPYM | ETF | 0.02% |
| Vanguard S&P 500 ETF | VOO | ETF | 0.03% |
| iShares Core S&P 500 ETF | IVV | ETF | 0.03% |
| SPDR S&P 500 ETF Trust | SPY | ETF | 0.0945% |
Expense ratios are from the funds’ published fact sheets, including State Street’s SPYM fact sheet and Vanguard’s VOO profile, and can change, so check the latest figures before buying. An expense ratio of 0.03% means you pay about $3 a year for every $10,000 invested.
Because these funds hold essentially the same stocks, the differences are small. SPY is the oldest and most heavily traded, which matters to active traders but not much to long-term investors, who usually prefer the cheaper options.
Investing in the S&P 500 from outside the US
Investors outside the US can often buy S&P 500 funds through international brokers or through locally listed funds. In Europe and some other markets, investors typically use UCITS versions of S&P 500 ETFs domiciled in Ireland. Rules, currency costs and taxes on dividends vary by country, so check what your local regulator allows and how your broker handles withholding tax before you invest.
Risks to understand first
- Big drops happen. The index lost more than half its value from its 2007 peak to its 2009 low, and it fell about 19% in 2022. Past returns do not guarantee future results.
- Concentration. Because the index is weighted by size, a handful of giant tech companies make up a large share of it, so their swings move the whole fund.
- US-only exposure. The S&P 500 covers large US companies only, not small companies or international markets.
- Currency risk. If you earn and spend in another currency, exchange-rate moves affect your returns.
Common mistakes to avoid
- Trying to time the market by waiting for the “perfect” entry point.
- Selling in a panic during a downturn.
- Paying high fees for a fund that tracks the same index as a cheaper one.
- Investing money you will need within a few years.
- Owning several S&P 500 funds and thinking you are diversified.
Frequently asked questions
How much money do I need to start?
With fractional shares, many brokers let you start with a few dollars. Some mutual funds have minimums, but FXAIX, for example, has no minimum at Fidelity.
Is the S&P 500 a good investment for beginners?
Many beginners like it because it is diversified across hundreds of companies, cheap to own and simple to understand. It still carries stock market risk, so it suits long-term money.
ETF or mutual fund: which is better?
Both work. ETFs are flexible and widely available; mutual funds make automatic investing easy. In taxable US accounts, ETFs are often more tax-efficient.
Bottom line
Learning how to invest in the S&P 500 comes down to three choices: the account, a low-cost fund that tracks the index, and a regular investing habit you can stick with through ups and downs. Keep fees low, think in years, and pair it with a healthy financial base. For a wider view, read our beginner’s guide to investing and check where you stand on credit scores.
This article is for general education and is not personalized financial advice. Consider speaking to a licensed financial adviser about your situation.
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