How to invest in the S&P 500 (2024)

To invest in the S&P 500 index, you could buy all 500 stocks or invest in an S&P 500 index fund.

Either way, the easiest way to do this is through an online share trading platform.

What is the S&P 500 index?

The S&P 500 or the Standards & Poor's 500 is an index that measures the 500 largest corporations by market capitalisation listed on either the New York Stock Exchange or the Nasdaq Composite.

The idea behind the index is to give investors a quick look at how the overall market is going, although some take it as an indication of the economy at large.

But there are a few criteria you need to tick off to make the list.

To be eligible to enter the S&P 500, a company should be a US company, have a market capitalisation of at least US$15 billion, be highly liquid, have a public float of at least 10% of its shares outstanding and its most recent quarter's earnings and the sum of its trailing 4 consecutive quarters' earnings must be positive.

The S&P 500 is a float-adjusted market-cap index and is calculated by the market cap of all S&P 500 stocks divided by an index divisor, which is a proprietary figure that Standard & Poor's owns.

Expert insight

"The S&P 500 provides exposure to the top companies in the largest and most dynamic economy in the world. Compared to the Australian market, which is top heavy in banks and miners, the S&P 500 also offers diversification for Australian investors by providing relatively higher exposure to the high growth technology sector."

David Bassanese

Chief Economist, Betashares

Finder survey: Are Australians worried about a stock market crash in the next 12 months?

Investing in the S&P 500 through stocks

The S&P 500 index is composed of 503 stocks issued by 500 different companies. This is because companies like Alphabet have issued multiple classes of shares.

But just because there are around 500 options, it doesn't mean you need to buy them all. Instead, you can purchase individual shares or a group of them that you think will have a stronger return than the S&P 500 will have as an index. When you are working this out you should incorporate dividends as well as share price appreciation.

While doing this is more risky and will take more time in researching compared with buying ETFs, it does have the added advantage of giving you larger returns than ETFs if done effectively.

If you're looking to buy individual stocks on the S&P 500 you should follow a few steps:

1. Find a broker that allows you to invest in the S&P 500. Not every broker has access to every market. Instead you'll need to find one that lets you invest in US stocks. When choosing a broker keep in mind where you want to trade, the fees with trading and any additional fees the broker says it will charge.
2. Do your research. If you're going to buy an individual share or basket of shares (usually more desirable), you should understand the ins and outs of the business you own. After all, you wouldn't just give your money away, so you shouldn't just invest in any old share. Instead learn the business's current balance sheet, future opportunities and fair price to pay for the shares.
3. Deposit funds. You'll need to add funds into your account before you can buy any shares.
4. Buy the index fund. Once your money has been deposited, you can then buy stocks in the S&P 500. You'll generally pay a small annual commission fee and foreign exchange fee when you trade US stocks.
5. Review. Once you've purchased the stocks, it's important to keep an eye on the business's performance. While this doesn't necessarily mean the company's share price (although it can be an indication), you will need to actively monitor how the business is performing compared with your expectations.

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Which companies make up the S&P 500?

The S&P 500 is made up of around 500 listed stocks across 500 of the largest US companies by market capitalisation, which means it contains some of the most recognisable and popular stocks in the world.

It's also weighted by market capitalisation, meaning bigger companies make up a larger part of the index. The S&P 500 is rebalanced each quarter in March, June, September and December. As of 9 September 2024, the top 10 largest companies in the S&P 500 were as follows.

1. Apple (AAPL)
2. Microsoft (MSFT)
3. Nvidia (NVDA)
4. Amazon (AMZN)
5. Meta Platforms (META)
6. Alphabet (GOOGL) Class A
7. Berkshire Hathaway (BRK.B) Class B
8. Alphabet (GOOG) Class C
9. Eli Lilly & Co. (LLY)
10. Broadcom Inc. (AVGO)

How does the S&P 500 perform?

The S&P 500 has averaged an annual return of 10.52% over the last 30 years¹, making it one of the best performing indices in the world. Accounting for inflation, this means an annual average return of 7.78% (including dividends).

Investing in the S&P 500 through ETFs

Instead of investing in individual shares of the 500 companies on the S&P 500, you can invest in the entire group of stocks through an index fund.

This is the easiest way to invest in the S&P 500. While you won't "outperform the market" you will get the market average, which is actually a strong return. And you'll achieve this with a lot less effort than researching individual shares.

As an example, say you invested $10,000, some 30 years ago and just left it through the dot-com crash, GFC and COVID downturn, it would be worth over $200,000 in 2024. Not bad for doing very little work.

An ETF is a low-cost investment fund that can be traded on a stock exchange such as the S&P 500. These funds are created by ETF issuers and fund managers and are made up of a basket of securities such as shares, cash and bonds.

What S&P 500 index funds are available in Australia?

Here's a list of some S&P 500 ETFs you can trade in Australia:

• iShares S&P 500 AUD Hedged ETF: (IHVV)
• iShares S&P 500 ETF:L (IVV)
• BetaShares S&P 500 Equal Weight ETF (QUS)
• SPDR S&P 500 ETF Trust: (SPY)
• BetaShares S&P 500 Yield Maximiser Fund (Managed Fund): (UMAX)
• ETFS S&P 500 High Yield Low Volatility ETF: (ZYUS)

To view .

Unfortunately, there isn't a one-size-fits-all answer. Instead, it greatly depends on your goals, risk tolerance, strategy and individual circ*mstances.

The argument for index investing is the returns are quite strong. If you take the S&P 500's return since it was introduced in 1957, you'd get an annualised return of 10.7%. In other words you'd double your money in less than 7 years. And it takes very little work to do so.

The argument for buying individual stocks is that you can potentially "beat the market" and increase your return. If you can do this over a number of years, you'll obviously beat the average and increase your returns. By that same token, you're also at a greater risk of facing losses if you pick the wrong stocks.

The good news is you don't really need to choose either. A lot of investors simply mix index funds (such as ETFs) and individual shares.

Frequently asked questions

• Yes, you absolutely can. You can invest in what is known as an exchange-traded fund (ETF). If you have a market tracking fund, you will take a small position in each of the 500 companies on the S&P 500 traditionally based on market capitalisation. This means you'll own more of the larger companies and less of the smaller ones, although you can get an equal weighted fund.

• The S&P 500 was officially created in 1957, but its origins date back a little further to 1923. Back then it wasn't quite the S&P 500, it was a smaller index.

  When the series first started, it included 233 companies and covered 26 industries.

  Fast forward 30 years to 1957 when the S&P 500 expanded into the largest 500 companies in the world.

• While past performance isn't necessarily a guarantee of future success, if you look back, investing in the S&P 500 has been a strong investment. Due to the sheer size of the market and the exposure to a broad range of businesses, it has been seen as one of the safer investments you can make.

• If you had invested $10,000 in the S&P 500 at the beginning of 1980, you'd have around $1,003,074 according to officialdata.org.

  This means your investment returns are in total 9,903.75%, or 11.38% a year.

  According to the site, this would let you beat inflation by 2,684.74%, or 8.09% per year.

• The S&P 500 has had an average return of 11.38% over the last 40 years, but like all market indexes it doesn't have a straight line in terms of performance.

  Looking back, its worst performing year was in 1931 when returns were negative 47.07% (although it wasn't 500 businesses back then). Its best year was just 2 years later in 1933, when the market returned 46.59%.

  If you take from 1957, when it was the S&P 500, the market index's worst year was negative 38.49% in 2009 and its best year was in 1995 when investors gained 34.11%.

• Taking a historical perspective, if you invest enough money and have a long-term time horizon you can become a millionaire through the market.

  For example, if you invest $100 a week or $5,000 a year for the next 40 years and assume an annual return rate of 8% (which is lower than the market average) you would walk away with just shy of $1.4 million.

Written by

Kylie Purcell

Investments analyst

Kylie Purcell is the senior investments editor and analyst at Finder. She has completed a Certificate of Securities and Managed Investments (RG146) and specialises in investment products including online brokers, robo-advisors, stocks and ETFs. See full bio

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Co-written by

Cameron Micallef

Writer

Cameron Micallef was a utilities writer for Finder. He previously worked on titles including Smart Property Investment, nestegg and Investor Daily, reporting across superannuation, property and investments. Cameron has a Bachelor of Communication and Media Studies/ Commerce from the University of Wollongong. Outside of work Cameron is passionate about all things sports and travel. See full bio

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