How to buy an S&P 500 index fund

how do i invest in s&p 500

If your broker allows fractional shares investing, you can invest in an S&P 500 index fund with as little as a dollar. However, some brokerages only allow investing in whole shares and may have additional minimum investment requirements. For example, investing in most Vanguard index funds, including the S&P 500 index fund, requires a $3,000 minimum. There are mainly two different types of funds you can purchase that will track the S&P 500 index. So first you need to decide which type of fund you wish to buy. S&P 500 indexes allow you to invest in the 500 largest companies in the United States at a much lower cost than trying to buy their stocks individually.

There are a wide variety of trading simulators available, including those with and without fees. When opening a brokerage account, an online broker such as Charles Schwab or Fidelity will ask you about your investment goals (and the aforementioned level of risk that you’re willing to take). What’s your tolerance for risk (the chance that you may lose money while investing)? Stocks are categorized in various ways, such as large capitalization stocks, small cap stocks, aggressive growth stocks, and value stocks. Once you determine your risk tolerance, you can set your investment sights on the stocks that complement it. These often have low investment minimums (and ETFs are purchased for a share price that could be lower still), and some brokers, like Fidelity and Charles Schwab, offer index funds with no minimum at all.

Decide how you want to invest in the stock market

One can also invest in something practical, such as land or real estate, or delicate items, such as fine art and antiques. Ultimately, mutual and index funds are better for long-term investments, while ETFs are slightly better for short-term gains. If you are unsure, then consult with a financial advisor for information about which you should choose to invest in. Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided.

  • This can help you figure out how much money you can afford to pay your brokerage firm when it comes to fees and commissions.
  • The type of investment you choose might likely depend on you what you seek to gain and how sensitive you are to risk.
  • Like direct stock plans, though, you’ll have to seek out the companies that offer these programs.
  • You can scratch that itch and keep your shirt by dedicating 10% or less of your portfolio to individual stocks.

Over several decades, the average stock market return is about 10% per year. However, remember that’s just an average across the entire market — some years will be up, some down and individual stocks will vary in their returns. If you’re investing through funds — have we mentioned this is the preference of most financial advisors? — you can allocate a fairly large portion of your portfolio toward stock funds, especially if you have a long time horizon.

An index fund is a type of financial vehicle designed to mimic a particular market index. It pools investors’ money to purchase a portfolio of stocks or other securities. In the case of S&P 500 index funds, the stocks are those of the companies listed in the S&P 500.

If you are investing in an S&P 500 index fund:

It’s wiser to create a “base” to your portfolio with rock-solid, established businesses or even with mutual funds or ETFs. Both types of funds tend to own a large number of stocks and other investments. This makes them a more diversified option than a single stock.

If you sell your shares for a profit, you will be liable to pay capital gains taxes which are taxed at different rates depending on whether it was a long-term capital gain or a short-term capital gain. It’s probably near impossible to recreate the entire index by investing in all the stocks individually, using the same weights. A market index tracks the performance of a basket of stocks that represent a particular market or sector. Don’t get stuck on holding the S&P 500 as the majority of your portfolio. “There are other areas of the market you need in order to build a diversified portfolio, such as small-caps, mid-caps and international stocks,” says Favorito. “When you buy the S&P 500, 90% of the time you’re likely to outperform an active portfolio manager picking large-cap stocks,” says Joe Favorito, managing partner at Landmark Wealth Management.

For long-term investors, the stock market is a good investment no matter what’s happening day-to-day or year-to-year; it’s that long-term average they’re looking for. We have a guide to opening a brokerage account if you need a deep dive. You’ll want to evaluate brokers based on factors such as costs, investment selection and investor research and tools. Once you have a preference in mind, you’re ready to shop for an investment account. For the hands-on types, this usually means a brokerage account. For those who would like a little help, opening an account through a robo-advisor is a sensible option.

But “if you wanted all of the S&P 500 stocks, it would be very tedious and expensive to purchase them this way,” says Aviva Pinto, managing director at Wealthspire Advisors. This website is using a security service to protect itself from online attacks. The action you just performed triggered the security solution. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data.

how do i invest in s&p 500

Investing involves risk including the potential loss of principal. One important step to take before investing is to establish an emergency fund. This is cash set aside in a form that makes it available for quick withdrawal, such as a savings account. Most investments, whether stocks, mutual funds, or real estate, have some level of risk. You never want to find yourself forced to divest (or sell) these investments in a time of need. It can be risky to invest in a large portion of your wealth in just a few stocks.

How to invest in stocks in six steps

If the stock market is a giant jigsaw puzzle, you can think of an index as a magnifying glass. In the case of the S&P, the magnifying glass offers a closer look at the 500 biggest, most prominent pieces of the puzzle, giving you a clearer picture of the stock market as a whole. We hope your first stock purchase marks the beginning of a lifelong journey of successful investing.

Our guide will help you understand how to kick-start your investing journey by learning how to buy stocks. Investing is a commitment of resources now toward a future financial goal. There are many levels of risk, with certain asset classes and investment products inherently much riskier than others. It is always possible that the value of your investment will not increase over time. For this reason, a key consideration for investors is how to manage their risk in order to achieve their financial goals, whether these goals are short- or long-term. People new to investing who wish to gain experience investing without risking their money in the process may find that a stock market simulator is a valuable tool.

How To Invest in the S&P 500 Today

Still others may offer a certain number of commission-free trades for opening an account. It can be difficult to diversify when investing in individual stocks if your budget is limited. For example, with just $1,000, you may only be able to invest in one or two companies.

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The options outlined above offer some or all of these different investment accounts, although some retirement accounts are only available via your employer. If you want to invest in individual stocks, you should familiarize yourself with some of the basic ways to evaluate them. There we help you find stocks trading for attractive valuations. And if you want to add some exciting long-term-growth prospects to your portfolio, our guide to growth investing is a great place to begin. Buying flashy high-growth stocks may seem like a great way to build wealth (and it certainly can be), but I’d caution you to hold off on these until you’re a little more experienced.

A general rule of thumb is to keep these to a small portion of your investment portfolio. Whether you invest in a mutual fund or ETF depends on whether you want the intraday liquidity of an ETF. For some investors, the ability to trade the S&P 500 intraday, like stocks, is the main reason for choosing an ETF over an index fund. If intraday liquidity is important to you, consider an S&P 500 ETF over an index fund.

An S&P 500 Index Fund is an investment composed of stocks that are listed in the S&P 500 Index. Its performance will be nearly identical to the performance of the market index. An S&P 500 index fund furnishes an excellent entry into the stock market, since it offers a broad — though not perfect — representation of many publicly traded securities. For the most part, the minimum initial investment and recurring fees are low, and the autopilot approach of an index fund frees an investor from doing their own research on multiple companies. The S&P 500 is a grouping of stocks, not the stocks themselves, so there’s no way to directly invest in it.

How we make money

This rule suggests that 70% of your investable money should be in stocks, with the other 30% in fixed income. If you’re more of a risk taker or are planning to work past a typical retirement credit memo meaning age, you may want to shift this ratio in favor of stocks. On the other hand, if you don’t like big fluctuations in your portfolio, you might want to modify it in the other direction.

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  • With a market order, you’re indicating that you’ll buy or sell the stock at the best available current market price.
  • Options trading entails significant risk and is not appropriate for all investors.
  • Whether you have $1,000 set aside or can manage only an extra $25 a week, you can get started.

Index funds track a particular index and can be a good way to invest. Here’s the tough question, and unfortunately there isn’t a perfect answer. The best type of investment depends on your investment goals. But based on the guidelines discussed above, you should be in a far better position to decide what you should invest in. Even within the broad categories of stocks and bonds, there can be huge differences in risk. A request to buy or sell a stock only at a specific price or better.

Many mutual funds come with sales loads or commissions that are paid to the fund managers by investors. The first is charged when you buy the fund while the latter is charged when you sell your fund shares. Funds that are sold directly by the investment provider don’t come with a load. If you have the option, you may also access ETFs and mutual funds through employer 401(k) programs, individual retirement accounts (IRA), or roboadvisor platforms.


Index fund investing has several benefits that make it perfect for beginners. For example, they often charge low fees, require little maintenance and may provide built-in diversification. Plus, a simple portfolio of two to three index funds often provides enough diversification for the average investor. These funds are typically passively managed, meaning the investments are not selected by a human fund manager. Instead, they often aim to track the performance of an index such as the S&P 500. Investing is the act of distributing resources into something to generate income or gain profits.

The existence of a fiduciary duty does not prevent the rise of potential conflicts of interest. There is no single “best stock,” which is why many financial advisors advocate for investing in low-cost index funds. You can sell your stocks when you’re satisfied with the profits they’ve made, or when you need the cash. Ideally, you want to set specific, long-term goals for your investments so that you check both of those boxes at the same time. With a market order, you’re indicating that you’ll buy or sell the stock at the best available current market price. Because a market order puts no price parameters on the trade, your order will be executed immediately and fully filled, unless you’re trying to buy a million shares and attempt a takeover coup.

In the 10 years ended Oct. 4, 2022, the S&P 500 generated an annualized return of 10%. When you invest in the S&P 500 index, you’re not buying the index itself. Rather, you’re purchasing a fund that tracks the S&P 500 index.

how do i invest in s&p 500

For example, you can purchase low-priced stocks, deposit small amounts into an interest-bearing savings account, or save until you accumulate a target amount to invest. If your employer offers a retirement plan, such as a 401(k), allocate small amounts from your pay until you can increase your investment. If your employer participates in matching, you may realize that your investment has doubled. Investors who prefer professional money management generally have wealth managers looking after their investments.