When you invest in the S&P 500, you are looking at a stock market index that measures the stock performance of the 500 largest companies listed on the US stock exchanges. It is often referenced as the best representation of the US stock market as a whole. Now, that you know what the S&P 500 is, you may be wondering, how to invest in the S&P 500.
Maybe you just started doing research on investing or a beginner. You always hear famous investors like Warren Buffet say, “The average annual return since adopting 500 stocks into the index in 1957 through 2018 is roughly 8%. if you would have invested $10,000 in the S&P 500 you would have made a consistent 8% year of year growth.” Well the truth is many people don’t know how to invest in the S&P 500. Today I’m going to share with you how exactly you can invest in the S&P 500. (It’s more simple than you think!)
The reason this becomes confusing for some is because you don’t actually invest in the S&P 500, but you invest in an Index fund that follows the S&P 500. An index fund that follows the S&P 500. Meaning if the S&P 500 goes up your index fund goes up, if the S&P 500 (Stock Market) goes down then your Index fund goes down. There also is a small fee associated with each index fund. Below are 3 popular index funds that you can invest in that follow the S&P 500.
S&P 500 Index Fund
2019 Total Returns
VOO Vanguard S&P 500
0.03% / Annually
SPY SPDR S&P 500 Trust ETF
0.09% / Annually
IVV iShares Core
0.04% / Annually
What Fees are Associated with Investing in the S&P 500?
Due to the fact that you are investing in an index fund and not the actual S&P 500 there is a small fee associated with the fund. This is called the expense ratio. Is a yearly expense to the fund. For example VOO is 0.03%. In the screenshot below you will see exactly where to find the expense ratio on yahoo finance.
Since all of these indexes follow the S&P 500, I would take a look at their returns (they should be all similar) and what their expense ratio is.
For example if you invest $10,000 into the S&P 500 you will pay .03% annual expense ratio which is $3 every year.
Simple S&P 500 Calculation
For this example you will investing $10,000 into VOO stock on Feb 12, 2010
VOO Stock was 104 at close on Feb 12, 2010 & VOO Stock was 255 at close on April 12, 2020
First calculate percent change ( (255-104 ) / 104 ) = 1.45 or (145%)
New – Old / Old
Then take your $10,000 multiple by (1+1.45) = $24,500 rounded ($24,519.23 exact)
(1 for the initial amount + the percentage change in decimal form)
Take your initial $10,000 / 104 (share amount in 2010) = 96.15 shares purchased
Then multiply the number of shares purchased by the current price
96.15 * $255 = $24,519. 23 exact
Therefore in 10 years you would have made $14,500 off your initial $10,000 investment.
Get Started Investing Today in the S&P 500
If you don’t know where to begin when it comes to investing, I always recommend that people invest in the S&P 500 until they figure out individual stocks they want to invest in.
To begin trading you, you need to open an account from one of the platforms below,
Determine how much money you feel comfortable investing
I recommend that you buy shares over time to get the weighted average. This method is referred to as DCA (Dollar Cost averaging) meaning that if you have 10,000 you make 10 purchases of 1,000 on 10 different days.
It’s important to know if you are trying to catch the bottom it will be almost impossible to
Below is a list of different trading platforms so you can start investing today! If you are still confused on how to get started or your account set-up for a limited time i’m offering a one on one hour session to help you get started!