To invest in the S&P 500 index, you could buy all 500 stocks or invest in an S&P 500 index fund. Either way, the easiest way to do this is through an online share trading platform.5 steps to investing in the S&P 500 from Australia
The S&P 500 or the Standards & Poor's 500 is an index that measures the 500 largest corporations by market capitalisation listed on either the New York Stock Exchange or the Nasdaq Composite.
The idea behind the index is to give investors a quick look at how the overall market is going, although some take it as an indication of the economy at large.
But there are a few criteria you need to tick off to make the list.
To be eligible to enter the S&P 500, a company should be a US company, have a market capitalisation of at least US$11.8 billion, be highly liquid, have a public float of at least 10% of its shares outstanding and its most recent quarter's earnings and the sum of its trailing 4 consecutive quarters' earnings must be positive.
The S&P 500 is a float-adjusted market-cap index and is calculated by the market cap of all S&P 500 stocks divided by an index divisor, which is a proprietary figure that Standard & Poor's owns.
The S&P 500 provides exposure to the top companies in the largest and most dynamic economy in the world. Compared to the Australian market, which is top heavy in banks and miners, the S&P 500 also offers diversification for Australian investors by providing relatively higher exposure to the high growth technology sector.
David Bassanese
Chief Economist, Betashares
The S&P 500 index is composed of 503 stocks issued by 500 different companies. This is due to companies such as Alphabet having issued multiple classes of shares.
But just because there are 500 options, it doesn't mean you need to buy them all. Instead, you can purchase individual shares or a group of them that you think will have a stronger return than the S&P 500 will have as an index. When you are working this out you should incorporate dividends as well as share price appreciation.
While doing this is more risky and will take more time in researching compared with buying ETFs, it does have the added advantage of giving you larger returns than ETFs if done effectively.
If you're looking to buy individual stocks on the S&P 500 you should follow a few steps:
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The S&P 500 is made up of 505 listed stocks across 500 of the largest US companies by market capitalisation, which means it contains some of the most recognisable and popular stocks in the world.
But it works off a market cap, meaning bigger companies make up a larger part of the index. This constantly fluctuates, but at the time of writing, the top 10 were as follows.
Instead of investing in individual shares of the 500 companies on the S&P 500, you can invest in the entire group of stocks through an index fund.
This is the easiest way to invest in the S&P 500. While you won't "outperform the market" you will get the market average, which is actually a strong return. And you'll achieve this with a lot less effort than researching individual shares.
Take a look at the Vanguard index chart; if you invested $10,000 30 years ago and just left it through the dot.com crash, GFC and COVID downturn, it would be worth $182,376 in 2022. Not bad for doing very little work.
An ETF is a low-cost investment fund that can be traded on a stock exchange such as the S&P 500. These funds are created by ETF issuers and fund managers and are made up of a basket of securities such as shares, cash and bonds.
To help get you started, here's a list of S&P 500 ETFs in Australia to date:
S&P 500 Market Update: December 2023
When you hear of someone "trading the S&P 500", they're most likely referring to futures trading - typically executed via Contracts for difference (CFDs) in Australia.
This is a very different approach to "investing" in the S&P 500, which is typically associated with long-term investing into lower risk index funds.
Futures products, such as CFDs, on the other hand, are a derivatives product where you can speculate on index price movements. With CFDs, you never actually own the underlying asset. This is very different to index fund "investing" as it's much riskier and you're typically using leverage to amplify profits and losses.
Important: Futures and CFD trading is much riskier than regular share or index fund investing and should only be attempted by experienced traders.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Trading CFDs and forex on leverage is high-risk and you could lose more than your initial investment. It may not be suitable for every investor. Refer to the provider’s PDS and consider the risks before trading.
To view our best US S&P 500 ETFs click here.
Unfortunately, there isn't a one-size-fits-all answer. Instead, it greatly depends on your goals, risk tolerance, strategy and individual circumstances.
The argument for index investing is the returns are quite strong. If you take the S&P 500's return since it was introduced in 1957, you'd get an annualised return of 10.7%. In other words you'd double your money in less than 7 years. And it takes very little work to do so.
The argument for buying individual stocks is that you can potentially "beat the market" and increase your return. If you can do this over a number of years, you'll obviously beat the average and increase your returns. By that same token, you're also at a greater risk of facing losses if you pick the wrong stocks.
The good news is you don't really need to choose either. A lot of investors simply mix index funds (such as ETFs) and individual shares.
For most investors having at least some exposure to the companies listed in the S&P 500 will help grow their portfolio. After all, these are some of the biggest companies in the world and from an index point of view have provided stable returns for investors, albeit over the long term.
However, how you gain exposure to the market varies depending on your style. If you’re looking to beat the market, you can’t take a basket approach because getting the market average makes it impossible to outperform. In this instance, a more actively managed approach will be required.
On the other hand, if you simply want to grow your money over the long term, a more hands-off passive approach through ETFs could help you.
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