How to Invest in the S&P 500

Contributor, Benzinga

Want to jump straight to the best options broker? Most people prefer Interactive Brokers for their options trades.

What is the S&P 500?

S&P stands for Standard and Poor’s and the 500 refers to the number of companies present in the index. The 500 companies in the index are a combination of the largest stocks on the NYSE and NASDAQ. The index is a free float capitalization weighted index.

An index fund is a mutual fund that aims to benchmark itself against an index that resembles that fund’s strategy. It is always essential to read the fund’s objective and prospectus to identify the fund’s targeted benchmark.

So, instead of buying all the stocks in the S&P 500, you can simply invest into a fund that tracks its performance in coordination with the index. S&P 500 Index funds currently stand as one of the easiest ways to invest in anything and everything.

Why should I invest in the S&P 500?

Whether it be the overall market or certain sectors, it can be hard to decide what and where, geographically-speaking, you want to invest. This is exactly why you want part of your portfolio to have exposure to the entire market–for the best diversification.
The S&P 500 index is referred to on Wall Street when describing the overall movement of the equity in the economy.

It’s important to understand that not every market has identical characteristics, especially when it comes to regulations and politically motivated restrictions. For instance, if you are an emerging markets enthusiast and are looking to place an investment over a large umbrella of securities, it may be wise to avoid China due to an escalating trade war and a lack in regulatory transparency.

Investing in the S&P 500 eliminates most of this risk due to the fact that there is not a Chinese company present in the index.

Invest In The S&P 500
A chart of the S&P 500’s performance over the last five years. As you can see, the index experiences slow, steady growth. Source:

Steps to investing in the S&P 500

Now that you know a little more about the S&P 500, you can invest. Here’s how to invest in the index.

Step 1: Pick a broker

If you already invest with your favorite financial advisor or online brokerage you can skip this step. But, if you’re new to the investing world. You can do some research and choose what brokerage is best for you.

There’s not a perfect broker, but it’s always important to know the advantages and disadvantages of each. For some tips, it would be wise to seek a brokerage that offers managers with no-load fees and low expense ratios. Not all brokerages have the same transaction costs, either. Make sure you do your research to see who can provide the most value, for the cheapest price. 

get started securely through TradeZero’s website
Best For
1 Minute Review

TradeZero is an online broker and free stock trading platform that provides everything you need to successfully share and trade, including round-the-clock customer support. TradeZero provides four different trading state-of-the-art software programs with its services, a locator for sourcing shares for shorting, commission-free trades, and real-time streaming, to name a few of the features promoted on their website. The software is a unique and (potentially) affordable option for anyone interested in stock trading.

Best For
  • Traders seeking high transparency and mobility in a stock trading program
  • Those attracted to commission-free trades
  • Those seeking a free version of a high-quality trading program
  • 24/7 live customer support
  • Uses ZeroWeb technology, a powerful level 2 online platform with direct market access
  • Mobile app allows users to access stocks and trade in real-time while on the go
  • Enforces Pattern Day Trading restrictions (accounts need to maintain a daily equity balance of at least $25k)
  • Mobile app could offer more features
get started securely through Webull’s website
Best For
Intermediate Traders and Investors
1 Minute Review

Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.

Webull is widely considered one of the best Robinhood alternatives.

Best For
  • Active traders
  • Intermediate traders
  • Advanced traders
  • No account maintenance fees or software platform fees
  • No charges to open and maintain an account
  • Intuitive trading platform with technical and fundamental analysis tools
  • Does not support trading in mutual funds, bonds or OTC stocks
Get started securely through Axos Invest’s website
Best For
Sign Up Bonus
1 Minute Review

It seems like new digital investment management platforms are sprouting up left and right, and for good reason — there’s a great need for easy, straightforward investment management that doesn’t cost an arm and a leg in fees or to get started. If you’re new to investing or an old hat who wants to make the switch to a virtual manager, deciding which features you need can be confusing if not overwhelming.

If you want a no-frills financial management platform, Axos Invest (formerly WiseBanyan) takes a traditional but sophisticated approach to automated online investing.

Best For
  • Traditional investors trying out an automated investor for the first time
  • New investors that want to take a hands-off approach to portfolio management
  • Straightforward automated investing
  • Relatively low account minimum and automated investing fee
  • A solid roster of available investment account types
  • Not a stand-out from other services if you’re someone who likes all the bells and whistles with your digital financial platform
  • No direct relationship with a human financial advisor
get started securely through Interactive Broker’s website
Best For
Global and Active Traders
1 Minute Review

Interactive Brokers is a comprehensive trading platform that gives you access to a massive range of securities at affordable prices. You can buy assets from all around the world from the comfort of your home or office with access to over 135 global markets. Options, futures, forex and fund trading are also available, and most traders won’t pay a commission on any purchase or sale.  

IBKR is geared primarily toward experienced traders and investors but now with the availability of free trades with IBKR Lite, casual traders can also acclimate to IBKR’s offerings.

Best For
  • Options traders
  • Traders trading 24/7
  • Sophisticated investors
  • Access to International markets
  • Advanced trading platform & suite of options trading tools to create & execute sophisticated trading strategies
  • Fixed fees offer infrequent traders low, flat rate per contract, inclusive of all fees
  • Tiered fees offer active traders lower cost per transaction and possible exchange rebates for higher volumes
  • Beginner investors might prefer a broker that offers a bit more hand-holding and educational resources

Step 2: Pick your fund

You are ready to screen for certain index funds that fit your needs once you have registered with a brokerage. Take your time to review the fund’s objective, prospectus, and performance. Consider the time period you want to invest and the trends in the overall market. Do not expect last year’s return of nearly 19 percent to occur year after year. Geopolitical factors, taxes, and natural disasters will not be as nearly calm as they were prior to 2018.   

While analyzing a fund’s performance, it’s important to pay attention to historical cumulative returns, portfolio turnover, and volatility metrics. Be sure to analyze regional diversification, sub-industry diversification, and asset allocation when viewing the fund’s composition.

That being said, the S&P 500 should hit a lot of these metrics. But, make sure to look at real-time data before investing.  Also, remember that a brokerage cannot fill an order for a mutual fund until the end of the day after net asset values (NAV) have been adjusted.

Final thoughts

All in all, index funds provide diversification and steady returns. Mutual funds have strict regulatory oversight and require the fund manager to release almost all profits back into the fund, in order to avoid paying taxes.

The end of the year is famous for people who like to take advantage of capturing year-end cap distributions. If you’re an investor that desires liquidity, try an ETF that tracks the S&P 500 or check out Benzinga’s picks for the best S&P 500 index funds.

Benzinga's #1 Breakout Stock Every Month

Looking for stocks that are about to breakout for gains of 10%, 15%, even 20% potentially or more? The only problem is finding these stocks takes hours per day. Fortunately, Benzinga's Breakout Opportunity Newsletter that could potentially break out each and every month. You can today with this special offer:

Click here to get our #1 breakout stock every month.