What buying the S&P 500 actually means
When you "invest in the S&P 500," you are not buying the index itself. You are buying a fund — either a mutual fund or an exchange-traded fund (ETF) — that holds all 500 stocks in the index. The fund manager buys and sells those 500 stocks to match the index, so your money moves with the overall performance of large US companies.
You cannot buy the S&P 500 directly from the stock exchange. You buy a fund that tracks it. The two main types are index mutual funds and index ETFs. Both hold the same 500 stocks, but they trade differently and have different costs. Most people starting out choose an ETF because the fees are lower and you can buy a single share at a time.
Key Takeaways
- You buy an S&P 500 fund through a brokerage account — a company like Fidelity, Vanguard, or Charles Schwab that lets you trade stocks and funds.
- The two main options are index ETFs (trade like stocks, lower fees) and index mutual funds (trade once per day, slightly higher fees).
- Popular S&P 500 ETFs include VOO, IVV, and SPY; all three track the same index and have fees under 0.10% per year.
- You need to open a brokerage account, fund it with money, search for the fund by its ticker symbol, and place a buy order.
- The entire process from account opening to your first purchase usually takes one to three business days.
Opening a brokerage account
You need a brokerage account to buy any fund. A brokerage is a company licensed to buy and sell securities on your behalf. The major ones are Fidelity, Vanguard, Charles Schwab, E-Trade, and Merrill Edge, but there are dozens of others. Most charge no account fees and no commission to buy funds.
To open an account, go to the brokerage's website and click "Open an Account" or similar. You will enter your name, address, Social Security number, and employment information. The brokerage will verify your identity — this usually happens instantly online, though sometimes they mail you a confirmation code. Once approved, you can log in and fund your account.
Funding means transferring money from your bank account to the brokerage. You can link your bank account directly (this takes one to three business days to verify) or wire money (usually instant but may have a fee). Start with a small amount if you are unsure — you can add more later.
Choosing between ETFs and mutual funds
| Feature | Index ETF | Index Mutual Fund |
|---|---|---|
| How you buy | Like a stock, one share at a time, during market hours | Any dollar amount, once per day after market close |
| Typical annual fee | 0.03% to 0.10% | 0.03% to 0.20% |
| Minimum to start | Price of one share (usually $300–$500) | Often $1,000 to $3,000, or $50–$100 if you set up automatic deposits |
| Best for | People who want to buy once and hold; lower fees | People who want to invest a specific dollar amount regularly |
For most people starting out, an index ETF is the simpler choice. You buy one share at a time, the fees are the lowest available, and you can start with whatever money you have. The three largest S&P 500 ETFs are VOO (Vanguard), IVV (BlackRock), and SPY (State Street). All three track the same index and charge between 0.03% and 0.10% per year.
An index mutual fund works if you want to invest a set amount every month or if your brokerage requires a minimum deposit. Vanguard's VFIAX and Fidelity's FSKAX are popular S&P 500 mutual funds with low fees. The trade-off is that your order executes once per day after the market closes, so you cannot control the exact price you pay.
Placing your first buy order
Once your account is funded, log into your brokerage and look for a search bar or "Trade" section. Type the ticker symbol of the fund you want — for example, VOO for the Vanguard S&P 500 ETF. The fund will appear with its current price and performance history.
Click "Buy" and enter the number of shares you want. If you have $5,000 and VOO is trading at $450 per share, you can buy 11 shares (11 × $450 = $4,950). The brokerage will show you the total cost including any fees — usually there are none for funds. Review the order and click "Confirm" or "Submit."
Your order executes immediately if you are buying an ETF during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays). If you place an order after hours or on a weekend, it will execute at the next market open. You will see the shares in your account within one business day, and the cash will leave your account right away.
Understanding fees and costs
The main cost of owning an S&P 500 fund is the expense ratio — the annual percentage you pay to the fund company to manage it. For index funds, this is tiny: VOO charges 0.03% per year, which means on a $10,000 investment you pay $3 per year. Fidelity's FSKAX charges the same.
Some brokerages also charge trading commissions, but most major ones have eliminated these for stocks and funds. Check your brokerage's fee schedule before you open an account — it should be free to buy and sell funds.
You may also pay a bid-ask spread on ETFs, which is the tiny difference between the price you pay and the price the seller receives. For popular ETFs like VOO, this spread is usually less than one cent per share, so it is negligible.
What happens after you buy
Once you own shares, you do not have to do anything. The fund automatically holds all 500 stocks in the S&P 500, and when the index changes (companies are added or removed), the fund adjusts automatically. You will receive dividends — small cash payments from the companies in the index — usually four times per year. Most brokerages let you reinvest dividends automatically, which means they buy more shares for you.
You can check your account balance anytime by logging into your brokerage. You can buy more shares whenever you want, or sell your shares if you need the money. There is no penalty for selling, though you may owe capital gains tax if the shares have increased in value since you bought them.
Frequently Asked Questions
Do I need a lot of money to start?
No. With an ETF, you can start with the price of one share, which is usually $300 to $500. With a mutual fund, minimums vary but are often $1,000 to $3,000, though many funds waive the minimum if you set up automatic monthly deposits of $50 or $100.
Can I lose money investing in the S&P 500?
Yes. The value of your shares goes up and down with the stock market. If you sell when the market is down, you will lose money. If you hold through downturns, history shows the index has recovered and grown over time, but past performance does not may provide future results.
Should I buy VOO, IVV, or SPY?
All three track the same index and have nearly identical fees. VOO and IVV charge 0.03% per year; SPY charges 0.09%. For a new investor, VOO or IVV are slightly cheaper. The difference is so small that picking any of the three is a reasonable choice.
What if I want to invest money every month?
You can set up automatic monthly purchases through your brokerage. Most let you schedule a recurring buy order for any amount. This is called dollar-cost averaging and removes the pressure to time the market perfectly.
Do I owe taxes on my S&P 500 investment?
You owe tax on dividends you receive and on any gains when you sell. If you hold the shares for more than one year, you pay long-term capital gains tax, which is usually lower than ordinary income tax. If you hold in a retirement account like a 401(k) or IRA, taxes are deferred or eliminated entirely.