When you’re new to investing, people love to throw around phrases like “Just invest in the S&P 500.” But what people mean when they say invest in the S&P 500 isn’t always obvious, especially if no one’s ever explained what it actually is, how it works, or how to do it. This article breaks it down in plain English so you can understand exactly what they’re talking about and whether it makes sense for you.
Article highlights
- What the S&P 500 really is and why you can’t buy it directly
- Why investing in it is considered smart and beginner-friendly
- How to invest in it through index funds or ETFs
- Where to open an account and get started
- When it makes sense to start investing in the S&P 500
What exactly is the S&P 500?
The S&P 500 is a list of 500 of the biggest and most successful public companies in the United States. These include companies like Apple, Amazon, Microsoft, and Coca-Cola. The list changes over time, but it represents the largest and most profitable businesses in the country across many industries.
The S&P 500 is known as a stock market index. That means it is used to measure how those 500 companies are performing as a group. The index does not have money, and you cannot buy it directly. It is just a tool that tracks the value of those companies combined.
When people say “invest in the S&P 500,” they mean putting money into a fund that copies this list. These funds include shares of all 500 companies, so your investment grows or falls along with them. You are not buying the index, you are investing in a fund built to match it.
Why do people recommend investing in it so much?
One reason is that it spreads your money across hundreds of companies at once, which reduces your risk. If one company struggles, it will not drag down your entire investment. Over time, the S&P 500 has delivered strong long-term growth, averaging around 7 to 10 percent per year even with market ups and downs.
Another reason people recommend it is because it lets the experts do the hard work. When you invest in an S&P 500 fund, you are trusting professionals to analyze company financials like profit and loss, earnings per share, and price-to-earnings ratios. Instead of researching businesses yourself, you are letting the index only include companies that already meet strict standards. It is a simple way to benefit from expert-level decisions without having to study stock charts or read financial reports.
How do you actually invest in the S&P 500?
You invest in the S&P 500 by buying a fund that is designed to follow it. These are called index funds or ETFs, and they are built to include all 500 companies on the list. Some popular options include:
- VOO – Vanguard S&P 500 ETF
- SPY – SPDR S&P 500 ETF
- FXAIX – Fidelity 500 Index Fund
You can buy these through any brokerage account, a Roth IRA, or a 401(k) if your employer offers one. Many platforms let you start with as little as five or ten dollars, and most allow you to set up automatic contributions.
Where do you go to start investing?
You can start investing through online platforms like Fidelity, Vanguard, Charles Schwab, SoFi, or Robinhood. These services let you open an account, fund it with money from your bank, and buy shares of S&P 500 funds directly. Most of them do not charge fees to open an account and are designed for beginners.
If you already have a retirement account through work, like a 401(k), there is a good chance you already have access to an S&P 500 fund. Look for one with “500 Index” or “S&P 500” in the name.
When should you invest in the S&P 500?
The best time to start is as soon as you can. You do not need to wait until you have a large amount of money saved. The earlier you invest, the more time your money has to grow through compound interest. Even small contributions add up over time if you stay consistent.
The S&P 500 is meant for long-term investing, not short-term trading. If you plan to leave your money invested for five years or more, you are in a good position to benefit from the market’s growth over time.
The bottom line
When someone says “invest in the S&P 500,” they are talking about putting your money into a fund that tracks the 500 largest companies in the country. Shares can be purchased through an investment account like a 401(k) or Roth IRA.
It’s very similar to buying a share of an individual stock and is regarded as one of the smartest, easiest, and safest ways to invest your money in the stock market, that allows you to see amazing compound returns over time. It does not require deep knowledge of the stock market. You just need to get started and stay consistent.