The most direct way to invest in the S&P 500

You buy shares of an index fund or exchange-traded fund (ETF) that tracks the S&P 500. These funds hold all 500 stocks in the index, so when you buy one share of the fund, you own a tiny piece of all 500 companies at once. You do not buy individual S&P 500 stocks — you buy a fund that does that work for you.

The S&P 500 is a list of 500 large U.S. companies chosen and maintained by Standard & Poor's. It includes names like Apple, Microsoft, Coca-Cola, and JPMorgan Chase. The index itself is not something you can buy directly; you buy a fund that mirrors it.

Most people open a brokerage account (online or through a bank), deposit money, and then search for and purchase shares of an S&P 500 fund using that account. The whole process takes less than an hour for most people.

Key Takeaways

  • You buy index funds or ETFs that track the S&P 500, not the index itself — these funds hold all 500 stocks for you.
  • You need a brokerage account with a bank or online broker like Fidelity, Vanguard, Charles Schwab, or Robinhood to purchase fund shares.
  • Index funds and ETFs that track the S&P 500 charge different fees; lower-cost options from Vanguard and Fidelity often cost 0.03% to 0.10% per year.
  • You can invest a lump sum or set up automatic monthly deposits, and you can hold these funds in a regular taxable account or a retirement account like an IRA.

Opening a brokerage account

A brokerage account is where you hold money and buy investments. You open one with a bank or an online broker. Most online brokers have no account minimums, no monthly fees, and no requirement to keep a certain balance.

Common brokers include Fidelity, Vanguard, Charles Schwab, E*TRADE, and Robinhood. Each has a website and a mobile app. You sign up by providing your name, address, Social Security number, and employment information. The process is online and takes 10 to 20 minutes.

After you open the account, you link a bank account and transfer money into your brokerage account. This transfer usually takes one to three business days. Once the money is there, you can buy fund shares immediately.

Index funds versus ETFs: what to know

Both index funds and ETFs track the S&P 500, but they work slightly differently. An index fund is a mutual fund that you buy directly from the fund company. An ETF is a fund that trades on a stock exchange like a stock does.

For most people starting out, the difference does not matter much. Index funds are simpler: you place an order and it fills at the end of the trading day at a set price. ETFs trade throughout the day like stocks, so the price changes minute to minute. ETFs often have lower fees, but index funds are easier to understand.

Popular S&P 500 index funds include the Vanguard 500 Index Fund (ticker: VFIAX) and the Fidelity 500 Index Fund (ticker: FXAIX). Popular S&P 500 ETFs include the Vanguard S&P 500 ETF (ticker: VOO) and the iShares Core S&P 500 ETF (ticker: IVV). All four charge less than 0.10% per year in fees.

Understanding fund fees and expense ratios

Every fund charges a fee — a percentage of your money that the fund company keeps each year to run the fund. This fee is called the expense ratio. It is automatically deducted from your investment; you do not write a check for it.

S&P 500 index funds and ETFs are cheap to run because they simply copy the index — they do not require a manager to pick stocks. Expense ratios for S&P 500 funds range from 0.03% to 0.20% per year. That means on a $10,000 investment, you pay $3 to $20 per year.

Lower fees matter over time. A fund charging 0.03% per year will leave you with more money after 20 years than one charging 0.20%, all else equal. When comparing funds, always check the expense ratio before you buy.

Lump sum versus automatic monthly investing

You can invest money in two ways: put in a large amount all at once, or set up automatic monthly deposits. Both work. A lump sum gets your money into the market faster. Monthly deposits spread your purchases across different prices over time, which some people find less stressful.

Many brokers let you set up automatic investments — you choose an amount and a date each month, and the broker buys fund shares for you automatically. This removes the need to remember to invest and keeps you disciplined. You can change or stop automatic investments anytime.

The math shows that lump sum investing usually wins over time because money in the market grows longer. But the difference is small if you are investing consistently either way. Choose whichever method you will actually stick with.

Taxable accounts versus retirement accounts

You can hold S&P 500 funds in a regular taxable brokerage account or in a retirement account like a Traditional IRA or Roth IRA. The choice affects how much you pay in taxes later.

In a taxable account, you pay taxes on dividends and gains each year. In a retirement account, you do not pay taxes until you withdraw the money (or ever, in the case of a Roth IRA). Retirement accounts have annual contribution limits — for 2024, you can put up to $7,000 per year into an IRA if you are under 50.

Most people should max out a retirement account first if they have one through an employer or can open one. Once you hit the limit, a taxable account holds additional money. S&P 500 funds work well in both types of accounts.

How to place your first purchase

After you open an account and transfer money in, buying a fund takes four steps. First, log into your brokerage account online or on the app. Second, search for the fund by its ticker symbol (VOO, VFIAX, IVV, or FXAIX are common choices). Third, click "buy" and enter the number of shares or the dollar amount you want to invest. Fourth, review the order and confirm it.

The order processes immediately if you are buying an ETF during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays). If you are buying an index fund, the order fills at the end of the trading day. Either way, the shares appear in your account within one business day.

After you buy, you own the fund. You can hold it for decades, buy more shares later, or sell it anytime. Most people buy and hold S&P 500 funds for years or decades without selling.

Frequently Asked Questions

How much money do I need to start?

Most brokers have no minimum. You can open an account and buy a single share of an S&P 500 ETF for $400 to $500 (the price of one share). Some brokers let you buy fractional shares, so you can invest any amount, even $50. Start with whatever you can afford and add more over time.

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

Yes. The S&P 500 goes up and down. In some years it falls 10%, 20%, or more. If you need the money in the next few years, the S&P 500 may not be the right place for it. If you can leave the money alone for 10+ years, history shows the index has recovered from every downturn and reached new highs.

Should I pick an index fund or an ETF?

For most people, either works. ETFs are slightly cheaper and trade throughout the day. Index funds are simpler and fill once per day. Pick whichever your broker makes easiest to buy, or choose based on the expense ratio — the lowest-cost option wins over time.

Do I have to reinvest dividends?

S&P 500 companies pay dividends (cash payments to shareholders). Most brokers automatically reinvest dividends into more shares of the fund unless you tell them not to. Reinvesting is usually the best choice because it compounds your growth over time.

What happens if I want to sell my shares later?

You log into your account, find the fund, click "sell," enter how many shares you want to sell, and confirm. The money lands in your brokerage account within one to three business days. You can then withdraw it to your bank account. Selling is as simple as buying.