If you wish to own a piece of America’s biggest companies, then S&P 500 index fund offers you a chance! The S&P 500 is a list of 500 big companies in the United States, including well-known names like Apple, Amazon, and Microsoft. These companies make up about 80% of the U.S. stock market‘s value. When people talk about how the stock market is doing, they often mean how the S&P 500 is doing. In this guide, we’ll show you how to invest in the S&P 500 index fund and why it’s a smart choice for beginners.

Why Invest in the S&P 500 Index Fund?

There are many benefits to investing in the S&P 500 index fund, so here are some of them:

  • Investing in the S&P 500 index fund allows investors to diversify easily. You get to spread out your risk because you’re buying a little bit of 500 companies at once.
  • S&P 500 index funds are cheap to run because they don’t need a lot of management. This means more money stays in your pocket.
  • You can expect steady returns because, over time, the S&P 500 has grown about 10% per year on average. While this doesn’t guarantee future results, it’s a good track record.
  • It allows you to invest hands-off. So, you don’t need to pick individual stocks or watch the market all day.
How to invest in the s&p 500 index fund. Where to invest

Types of S&P 500 Index Funds

There are two main ways to invest in the S&P 500 index: mutual funds or exchange-traded funds (ETFs). Both offer exposure to the same underlying basket of 500 large-cap U.S. companies, but with some key differences in structure and how they trade.

Mutual Funds:

Mutual funds are like big pools of money from many investors. They’re priced once a day, after the market closes, at the Net Asset Value (NAV). When you invest in a mutual fund, you put in a specific dollar amount rather than buying a certain number of shares. The fund company then gives you however many shares that amount buys. Keep in mind that some mutual funds also have minimum investment requirements. This means you’ll need to have at least a certain amount of money, like $1,000 or $3,000, to get started with that particular fund.

One advantage of mutual funds is that it’s often easy to set up automatic investments. In this case, you can have money taken from your bank account each month to buy more shares. Besides the expense ratio, some mutual funds charge additional fees called “loads,” which are like commissions. It’s best to look for “no-load” funds to avoid these extra charges.

Exchange-Traded Funds (ETFs):

ETFs work more like individual stocks. Their prices change throughout the trading day, and you can buy or sell at any time the market is open. When you buy an ETF, you purchase a specific number of shares, just like you would with a stock.

One of the benefits of ETFs is that you can often buy as little as one share, and some brokers even allow you to buy fractional shares. ETFs usually have lower expense ratios than mutual funds, which makes them cost-effective. However, you might pay a commission to buy or sell, depending on your broker. Another advantage of ETFs is that they’re often more tax-efficient than mutual funds.

How to invest in the s&p 500 index fund. Exchange traded funds

How to Invest in S&P 500 Index Fund

Here’s a step-by-step guide on how to invest in the S&P 500 index:

Step 1: Choose a brokerage

Pick a company to hold your investments. Look for one with low fees and good customer service. Some popular choices are Vanguard, Fidelity, and Charles Schwab.

Step 2: Research S&P 500 index funds

Look at different S&P 500 index funds. Compare their costs (called expense ratios) and how closely they follow the index.

Step 3: Open and fund your account

Once you’ve chosen a reputable brokerage to hold your investments, the next step is to get your account set up. This process is usually straightforward and can be completed online. Then, you can fund your account by transferring money from your bank. The minimum initial investment amount will vary depending on the brokerage and the specific investment you choose, but some ETFs even allow you to start with as little as $1.

Step 4: Place your order

When placing your order, the process differs slightly depending on your chosen investment type. For an ETF, enter the fund’s ticker symbol (like VOO or SPY) and how many shares you want to buy. For a mutual fund, you’ll enter how many dollars you want to invest.

Step 5: Set up regular investments (optional)

To streamline the process further, consider setting up automatic investments. Consider setting up automatic investments. In this case, you can buy more of the fund regularly without having to think about it.

How to invest in the s&p 500 index fund. Regular investments

What to Look for in an S&P 500 Index Fund

There are some factors you need to consider when picking a fund. Here are some of them:

  1. Expense ratio: This is the yearly cost of owning the fund. So, the lower the expense ratio, the better. Many S&P 500 index funds charge less than 0.1% per year.
  2. Tracking error: This shows how closely the fund follows the actual S&P 500 index. However, a smaller tracking error is better.
  3. Minimum investment: Some funds let you start with just a couple of dollars, while others might require thousands of dollars.
  4. Dividend yield: This is how much the fund pays out in dividends.

Best S&P 500 Index Funds to Invest in

Here are some of the best S&P 500 index funds to invest in according to Forbes:

  1. Invesco Equally-Weighted S&P 500 (VADAX)
  2. Vanguard 500 Index Fund Admiral Shares (VFIAX)
  3. Schwab S&P 500 Index Fund (SWPPX)
  4. Zoe Financial
  5. Fidelity 500 Index Fund (FXAIX)
  6. Fidelity Flex 500 Index (FDFIX)