How to buy S&P 500 funds on Robinhood

On Robinhood, you can buy S&P 500 index funds in two ways: as an exchange-traded fund (ETF) or through a fractional share of an index fund. The most common route is buying an ETF like SPY, IVV, or VOO — these track the S&P 500 and trade like stocks. You search for the ticker symbol, enter the dollar amount or number of shares you want, and confirm the purchase. The transaction settles in one business day, and you own the shares immediately.

Robinhood also lets you buy fractional shares, meaning you don't need $400 or $500 to start — you can invest $1, $10, or any amount. This removes the barrier of needing a large lump sum. The process is identical: search the fund name or ticker, choose your dollar amount, and buy.

You do not need a minimum account balance to trade on Robinhood, and there are no commission fees on stock or ETF purchases. However, Robinhood makes money through other means: payment for order flow (selling information about your trades to market makers), margin lending, and premium subscription features. Understanding this matters because it affects how your orders are executed and what data Robinhood collects about your trading.

Key Takeaways

  • SPY, IVV, and VOO are the three most common S&P 500 ETFs available on Robinhood, and all three track the same index with slightly different expense ratios.
  • You can buy fractional shares on Robinhood, so you can invest any dollar amount rather than waiting to afford a full share.
  • Trades settle the next business day, meaning your money leaves your account immediately but the shares may not show in your account until the following day.
  • Robinhood charges no commission on stock or ETF trades, but the app makes money through payment for order flow, which can affect trade execution quality.

The three main S&P 500 ETFs on Robinhood

SPY (SPDR S&P 500 ETF) is the oldest and largest S&P 500 ETF, with over $400 billion in assets. Its expense ratio — the annual fee charged to hold it — is 0.09 percent. This means if you hold $10,000 in SPY, you pay about $9 per year in fees. SPY is the most traded S&P 500 fund, so buying and selling is fast and the bid-ask spread (the difference between buy and sell prices) is typically very tight.

IVV (iShares Core S&P 500 ETF) is managed by BlackRock and has a 0.03 percent expense ratio, making it cheaper than SPY. It holds over $300 billion in assets. The lower fee means you keep slightly more of your gains over time, though the difference is small for most investors.

VOO (Vanguard S&P 500 ETF) is managed by Vanguard and also charges 0.03 percent. It is the second-largest S&P 500 ETF with over $300 billion in assets. All three track the same 500 companies, so the choice between them comes down to expense ratio and personal preference.

For most people starting out, any of these three is a reasonable choice. The difference in cost between SPY (0.09%) and IVV or VOO (0.03%) amounts to $6 per year on a $10,000 investment — not nothing, but not a deciding factor if you prefer one platform or interface over another.

Step-by-step: buying your first S&P 500 fund

Open the Robinhood app and tap the search icon at the bottom. Type the ticker symbol — SPY, IVV, or VOO — and tap the result. You will see the current price, a chart, and a green "Buy" button.

Tap "Buy" and choose whether you want to buy a specific dollar amount or a specific number of shares. If you have $500 to invest, you can enter "$500" and Robinhood will calculate how many fractional shares that buys. Alternatively, enter a number of shares — for example, "1" or "0.5" — and Robinhood shows the cost.

Review the order summary. It shows the number of shares, the total cost, and the estimated settlement date (usually the next business day). Tap "Review Order" and then confirm. The transaction is complete, and your cash balance decreases immediately. The shares appear in your account the next business day.

If you want to set up regular investments, Robinhood offers automatic recurring purchases. Tap your account icon, go to "Investing," and select "Recurring Investments." You can set up daily, weekly, or monthly purchases of any stock or ETF, including S&P 500 funds. This is useful for dollar-cost averaging — investing the same amount on a fixed schedule regardless of price.

Understanding settlement and when you own your shares

When you buy an ETF on Robinhood, the cash leaves your account immediately, but the shares settle the next business day. Settlement means the trade is finalized and the shares are officially yours. During the settlement period, you own the shares but they may not appear in your holdings yet — this is normal and not a sign of a problem.

If you sell an ETF, the proceeds are available to withdraw or reinvest immediately, but the cash may take one to three business days to reach your bank account. Robinhood offers "Instant" transfers to your linked bank account for a small fee, or free transfers that take longer.

Weekends and market holidays do not count as business days. If you buy on a Friday, settlement is Monday. If you buy on a Monday that is a market holiday (like Presidents' Day), settlement is Tuesday.

Dividends and how they work on Robinhood

S&P 500 ETFs pay dividends — quarterly payments from the companies in the index. SPY, IVV, and VOO all pay dividends, typically in March, June, September, and December. The dividend amount varies based on the performance of the 500 companies.

On Robinhood, dividends are deposited directly into your cash balance. You can then reinvest them by buying more shares, or leave them as cash. Robinhood does not offer automatic dividend reinvestment (DRIP) like some other brokers, so you have to manually buy more shares if you want to reinvest.

Dividends are taxable income in a regular (non-retirement) account. If you hold the ETF in a Robinhood IRA or other retirement account, dividends are tax-deferred or tax-free depending on the account type.

Tax considerations and account types

In a regular taxable account, you owe capital gains tax when you sell an S&P 500 ETF for a profit. If you hold it for more than one year, it is taxed as a long-term capital gain, which has lower tax rates than short-term gains. Dividends are also taxable in the year you receive them.

Robinhood offers a Roth IRA and a traditional IRA, both of which let you invest in S&P 500 ETFs tax-free or tax-deferred. In a Roth IRA, you contribute after-tax money, but withdrawals in retirement are tax-free. In a traditional IRA, contributions may be tax-deductible, but withdrawals in retirement are taxed as income. Both have annual contribution limits set by the IRS — $7,000 for 2024 if you are under 50.

For most people, investing in an S&P 500 ETF inside a Roth IRA is a good starting point because growth is tax-free and you can withdraw contributions (not earnings) penalty-free if you need the money.

Risks and what can go wrong

S&P 500 ETFs are less risky than individual stocks because they hold 500 companies, spreading risk across many sectors. However, the entire index can decline — it has fallen 20 percent or more several times in the past 20 years. If you need the money within five years, a market downturn could force you to sell at a loss.

Robinhood-specific risks include outages during high-volume trading days, which have happened in the past. During market stress, the app may be slow or unavailable, preventing you from trading. Additionally, Robinhood's use of payment for order flow means your trades may not execute at the absolute best price available — the difference is usually small but can add up over many trades.

Fractional shares on Robinhood cannot be transferred to another broker easily, so if you want to move your account, you may have to sell fractional shares and repurchase whole shares elsewhere. This is a minor inconvenience but worth knowing.

Frequently Asked Questions

Do I need to have $500 to buy an S&P 500 ETF on Robinhood?

No. Robinhood lets you buy fractional shares, so you can invest $1, $50, or any amount. You will own a portion of a share rather than a whole share, but you receive dividends and capital gains proportionally.

What is the difference between SPY, IVV, and VOO?

All three track the S&P 500 and hold the same 500 companies. The main difference is the expense ratio: SPY costs 0.09 percent per year, while IVV and VOO cost 0.03 percent. Over 20 years, the lower-cost funds save you money, but the difference is small for most investors.

Can I lose money investing in an S&P 500 ETF?

Yes. The S&P 500 index has declined 20 percent or more several times historically. If you sell during a downturn, you lock in losses. However, if you hold for 10+ years, historical data shows the index has always recovered and reached new highs.

How often should I buy S&P 500 ETFs on Robinhood?

That depends on your goals and income. Some people invest a lump sum once. Others set up automatic monthly or weekly purchases to dollar-cost average — this removes the pressure of timing the market perfectly and can reduce anxiety during price swings.

Do I have to pay taxes on S&P 500 ETFs held on Robinhood?

In a regular taxable account, yes — you owe capital gains tax when you sell for a profit and income tax on dividends. In a Roth IRA or traditional IRA, taxes are deferred or eliminated depending on the account type. Robinhood sends you a 1099 form each year showing your taxable gains and dividends.