You can invest in the S&P 500 through a brokerage account by buying an index fund or ETF that tracks it

The S&P 500 is a list of 500 large U.S. companies. You do not buy "the S&P 500" directly — instead, you buy a fund that holds all 500 stocks in the same proportions as the index. The three main ways to do this are: open a brokerage account and buy an S&P 500 index fund, buy an exchange-traded fund (ETF) that tracks the S&P 500, or buy through a retirement account like a 401(k) or IRA if your employer or bank offers an S&P 500 option.

Most people choose index funds or ETFs because they cost less to own than picking individual stocks, and because owning 500 companies at once spreads the risk. You will need a brokerage account — a place to hold your money and execute trades — which you open online in about 15 minutes.

Key Takeaways

  • You buy S&P 500 index funds or ETFs through a brokerage account, not directly from the index itself.
  • Index funds and ETFs both track the same 500 companies, but ETFs trade like stocks during market hours while index funds settle at the end of the day.
  • Common S&P 500 funds include Vanguard VOO, Fidelity FXAIX, and Schwab SWPPX, each with different fee structures and account minimums.
  • You can hold S&P 500 funds in a regular taxable brokerage account, a 401(k), or an IRA, and the choice affects how much tax you pay on gains.
  • Once you buy, you can hold the fund for years without doing anything, or set up automatic monthly purchases to build your position over time.

Opening a brokerage account

A brokerage account is simply a container for your money and investments. You open one online with a bank or investment firm — common choices are Vanguard, Fidelity, Charles Schwab, E-Trade, or Robinhood. The process takes 10 to 20 minutes and requires your Social Security number, address, and bank account details so you can transfer money in.

Most brokerages do not charge a monthly fee to hold an account. They make money from trading commissions (which are now zero for stock and fund trades at most firms) or from lending out your shares. Once your account is open and you have transferred money into it, you can search for and buy an S&P 500 fund by its ticker symbol.

Some brokerages have account minimums — a smallest amount you must deposit to start — but many have dropped these to zero. Check the brokerage's website before opening to see whether they require a minimum deposit.

Choosing between index funds and ETFs

An index fund is a mutual fund that holds all 500 S&P 500 stocks. You place an order to buy shares, and the trade settles at the end of the trading day at a price set once per day. You can set up automatic monthly purchases, and many index funds have no minimum investment. Common S&P 500 index funds are Vanguard VFIAX, Fidelity FXAIX, and Schwab SWPPX.

An ETF (exchange-traded fund) also holds all 500 stocks, but it trades like a stock during market hours — you can buy and sell it any time the market is open, and the price changes throughout the day. The most popular S&P 500 ETFs are Vanguard VOO, iShares IVV, and Schwab SPLG. ETFs often have lower expense ratios (the annual fee you pay) than index funds, but you pay a small commission per trade if your brokerage charges one.

For most people starting out, an index fund is simpler because you can set up automatic monthly contributions and not think about it. ETFs are better if you want to trade during the day or if you prefer the lower fees. The difference in cost between a good index fund and a good ETF is small — often less than 0.1% per year.

Understanding expense ratios and fees

An expense ratio is the annual percentage fee the fund company charges to manage the fund. For S&P 500 funds, this is usually between 0.03% and 0.20% per year. On a $10,000 investment, that means you pay $3 to $20 per year. The difference sounds small, but over 30 years it compounds — a 0.03% fee costs far less than a 0.20% fee.

Vanguard VFIAX and Vanguard VOO both charge 0.03% per year. Fidelity FXAIX charges 0.015%. Schwab SWPPX charges 0.03%. These are among the lowest-cost options available. Avoid funds with expense ratios above 0.20% — they are not worth the extra cost for a simple index fund.

Beyond the expense ratio, check whether your brokerage charges a commission to buy or sell the fund. Most major brokerages now charge zero commission for mutual funds and ETFs, but some smaller or older platforms may still charge $5 to $50 per trade. This matters less if you plan to buy once and hold for years, but it adds up if you buy monthly.

Taxable accounts versus retirement accounts

You can hold an S&P 500 fund in a regular taxable brokerage account, or in a tax-advantaged retirement account like a 401(k) or IRA. The choice affects how much tax you owe on your gains.

In a taxable account, you pay capital gains tax on any profit when you sell the fund. If you hold it for more than one year before selling, you pay long-term capital gains tax, which is lower than ordinary income tax. You also pay tax on any dividends the fund distributes each year. However, you can buy and sell whenever you want, and there is no limit on how much you can contribute.

In a 401(k), your employer may offer S&P 500 index funds as an investment choice. You contribute pre-tax money (reducing your taxable income that year), and you do not pay tax on gains until you withdraw the money in retirement. Contribution limits exist — for 2024, the limit is $23,500 per year if you are under 50.

In an IRA (Individual Retirement Account), you can open your own account and invest in S&P 500 funds. A traditional IRA works like a 401(k) — contributions may be tax-deductible, and you pay tax on withdrawals later. A Roth IRA lets you contribute after-tax money, but withdrawals in retirement are tax-free. For 2024, the contribution limit is $7,000 per year if you are under 50. If you have access to a 401(k) through work, that is usually the best place to start because of the higher contribution limit.

Making your first purchase

Once your account is open and funded, buying an S&P 500 fund takes three steps. First, search for the fund by its ticker symbol — for example, type "VOO" into your brokerage's search bar. Second, click the fund name to open its details page. Third, click "Buy" or "Invest", enter the dollar amount or number of shares you want, and confirm the order.

If you are buying an index fund, your order will process at the end of the trading day. If you are buying an ETF, your order will execute immediately during market hours at the current price. Either way, the shares will appear in your account within one to three business days.

You do not need to time the market or wait for a "good" price. Research shows that investing a lump sum all at once, or spreading it over time with automatic monthly purchases, both work well over long periods. Many people set up automatic monthly contributions of $100 to $500 and let the money grow without checking the account.

Holding and growing your investment

Once you own S&P 500 shares, you can hold them for as long as you want. The fund will automatically reinvest dividends (small cash payments from the companies in the index) back into more shares, so your position grows even if you do not add new money. This is called dividend reinvestment, and most brokerages do it by default.

You do not need to rebalance, pick new funds, or monitor the account closely. The S&P 500 index itself is rebalanced by the index company (S&P Dow Jones Indices) four times per year, and your fund automatically adjusts to match. Your only job is to keep contributing if you can, and to not panic and sell during market downturns.

If you need the money before retirement, you can sell your shares anytime the market is open. If you are selling from a taxable account, you will owe capital gains tax on any profit. If you are selling from a 401(k) or traditional IRA before age 59½, you may owe a 10% early withdrawal penalty plus income tax, with some exceptions for hardship. A Roth IRA lets you withdraw contributions (but not gains) anytime without penalty.

Frequently Asked Questions

What is the minimum amount I need to invest in an S&P 500 fund?

Most index funds and ETFs have no minimum investment — you can buy a single share, which might cost $300 to $500 depending on the fund's current price. Some brokerages require a minimum account balance (often $0 to $500), but not a minimum per trade. Check your brokerage's website to confirm.

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

It is extremely unlikely. The S&P 500 includes 500 of the largest U.S. companies across many industries. For you to lose everything, nearly all of them would have to go bankrupt at the same time, which has never happened in U.S. history. You can lose money in the short term if the market drops, but historically the S&P 500 has recovered from every downturn and reached new highs.

Should I buy a lump sum or invest monthly?

Research shows both strategies work well over 20+ years. Lump-sum investing gets your money working immediately, but monthly investing feels safer because you buy at different prices. If you have the money available now, investing it all at once historically outperforms waiting. If you are nervous, monthly contributions of any amount are better than not investing at all.

Do I have to sell my S&P 500 fund eventually?

No. You can hold an S&P 500 fund for your entire life and pass it to heirs. Many people buy once in their 20s or 30s and never sell. If you need money in retirement, you can sell a portion and live off the proceeds, or simply let dividends accumulate and withdraw those.

What happens if a company in the S&P 500 goes bankrupt?

The index company removes it and replaces it with another large company. Your fund automatically adjusts — you do not have to do anything. This is one reason owning 500 companies is safer than owning one or two: if one fails, the others keep growing.