You can invest in the S&P 500 through a brokerage account by buying index funds or exchange-traded funds that track it

The S&P 500 is a group of 500 large U.S. companies. You do not buy the S&P 500 itself — instead, you buy a fund that holds all 500 stocks in the same proportions. The two main types are index mutual funds and exchange-traded funds (ETFs). Both track the same index and cost roughly the same amount. The difference is how you buy them: mutual funds trade once per day at a set price, while ETFs trade throughout the day like individual stocks.

To get your free guide, you open a brokerage account with a company like Fidelity, Vanguard, Charles Schwab, or dozens of others. You fund the account with money from your bank, then use that cash to buy shares of an S&P 500 fund. The fund company holds the 500 stocks; you own a piece of the fund.

Key Takeaways

  • You need a brokerage account to buy S&P 500 funds — open one online with a major firm like Fidelity, Vanguard, or Schwab in about 10 minutes.
  • Index funds and ETFs both track the S&P 500 with low costs, and the choice between them matters less than starting and staying invested.
  • Common S&P 500 funds include VOO and SPY (ETFs) and VFIAX and VTSAX (mutual funds), each costing less than 0.1% per year in fees.
  • You can invest a lump sum or set up automatic monthly contributions from your bank account.
  • The S&P 500 has historically returned about 10% per year on average over long periods, but past performance does not may provide future results.

Opening a brokerage account

A brokerage account is simply a container for your investments. You open one online by providing your name, address, Social Security number, and employment information. The process takes 10 to 15 minutes. Most brokerages have no account minimum, though some require a small deposit to fund the account right away.

Choose a brokerage based on reputation, customer service, and whether they offer the funds you want. Fidelity, Vanguard, and Charles Schwab are the largest and most widely used. Smaller brokerages like Webull or M1 Finance also work. All of them let you buy S&P 500 funds with no commission.

After your account is open, you link a bank account so you can transfer money in. This usually takes one to three business days. Once the money arrives, it sits in your account as cash until you buy a fund.

Choosing between index funds and ETFs

An index mutual fund is a pool of money managed to track the S&P 500. You buy shares at the end of each trading day at a price set by the fund company. If you buy at 3 p.m., you get the price calculated at 4 p.m. when the market closes. You can set up automatic monthly investments, and the fund will buy shares on the same day each month.

An ETF is similar but trades like a stock. You can buy or sell shares any time the market is open, and the price changes throughout the day. ETFs are slightly more tax-efficient in regular taxable accounts, though the difference is small for most people. Both charge annual fees, usually between 0.03% and 0.1% per year.

For most people starting out, the choice does not matter much. Pick whichever fund your brokerage makes easiest to buy, or choose based on the annual fee. Vanguard's VFIAX (mutual fund) and VOO (ETF) are popular. Fidelity offers FSKAX (mutual fund) and FXAIX (mutual fund). Schwab offers SWTSX (mutual fund). All track the same index and cost less than 0.1% per year.

How much to invest and how often

There is no minimum amount to start. You can invest $100, $1,000, or $10,000 — whatever you have. Many people set up automatic monthly contributions of $50 or $100 from their bank account. This is called dollar-cost averaging, and it removes the pressure of trying to time the market perfectly.

If you have a lump sum saved, you can invest it all at once. Historically, investing a large amount immediately has performed better than spreading it out over time, but the difference is small. What matters more is that you invest and stay invested for years.

You can also invest in an S&P 500 fund through a retirement account like a 401(k) or IRA, which offer tax advantages. If your employer offers a 401(k) match, that is usually the best place to start because the match is assistance programs.

Understanding fees and expenses

S&P 500 index funds charge an annual fee called an expense ratio, expressed as a percentage of your investment. A fund with a 0.05% expense ratio costs $5 per year for every $10,000 you invest. This is deducted automatically and does not show up as a separate bill.

Avoid funds with expense ratios above 0.2%. Some S&P 500 funds charge 0.5% or more, which is unnecessary — you can get the same index for less than 0.1% elsewhere. Over decades, a difference of 0.4% per year adds up significantly.

Your brokerage may charge commissions to buy or sell funds, but most major brokerages have eliminated these fees. Check before you open an account, but assume it is free.

What happens after you buy

Once you own shares of an S&P 500 fund, you own a small piece of 500 companies. You do not have to do anything. The fund automatically rebalances to stay aligned with the index, and you receive dividends (usually reinvested automatically to buy more shares).

You can check your balance online anytime, but avoid checking constantly — it encourages emotional decisions. The S&P 500 fluctuates daily, sometimes dropping 5% or 10% in a few weeks. This is normal. Historically, the index has recovered and gone higher over periods of five years or longer.

If you want to add more money, you can buy additional shares anytime. If you need to withdraw money, you can sell shares and transfer the cash back to your bank account in a few days.

Tax considerations in a regular account

If you invest in a regular taxable brokerage account (not a retirement account), you owe taxes on dividends and capital gains. When you sell shares for more than you paid, that profit is taxable. Index funds are relatively tax-efficient because they do not trade frequently, but you will still owe taxes.

ETFs are slightly more tax-efficient than mutual funds in taxable accounts. If you expect to hold the investment for many years without selling, the tax difference is small. If you are saving for retirement, a 401(k) or IRA avoids these taxes entirely until you withdraw the money.

Keep records of what you paid for your shares (your cost basis) so you can calculate gains or losses when you sell. Your brokerage tracks this automatically.

Frequently Asked Questions

Can I lose all my money investing in the S&P 500?

The S&P 500 has never gone to zero in its history. Individual companies in the index have failed, but the index replaces them. Over any 20-year period in history, the S&P 500 has been profitable. Over shorter periods, losses are possible — the index fell about 50% during the 2008 financial crisis and took several years to recover.

What is the difference between VOO and SPY?

Both are ETFs that track the S&P 500 with nearly identical performance. VOO is run by Vanguard and charges 0.03% per year. SPY is run by State Street and charges 0.09% per year. VOO is cheaper, but both are low-cost options. The choice between them is minor.

Should I invest in the S&P 500 or individual stocks?

An S&P 500 fund gives you instant diversification across 500 companies, which reduces risk. Individual stocks require research and carry higher risk if the company performs poorly. Most people are better served by index funds, especially when starting out.

Can I invest in the S&P 500 through my employer's 401(k)?

Yes. Many 401(k) plans offer S&P 500 index funds as an option. If your employer matches contributions, that is usually the best place to invest first because the match is immediate assistance programs.

How long should I hold S&P 500 investments?

The longer you hold, the better. The S&P 500 has historically recovered from every downturn and reached new highs. Holding for at least five years reduces the chance of selling during a downturn. Holding for 20 years or more has historically been very profitable.