What is the S&P 500 and how can I invest in it from Australia?
It's really simple. Here are the quickest and easiest ways to invest in one of the world's most popular stock indices.
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You often hear it talked about in the news but few take the time to explain what the S&P 500 is or why it matters. We explain the basics and how you can invest in it from Australia.
The S&P 500 is a stock market index that tracks the performance of the 500 largest US companies listed on the stock exchange. It's a key indicator because it's used as a benchmark for the performance of the broader US stock market.
So if you see the S&P 500 index rise or drop significantly on any given day, you'll know it's probably because of a major event that's impacting thousands of US corporations and even the economy.
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How to invest in the S&P 500 from Australia
There are a number of ways you can invest in the S&P 500 from Australia. As it's a collection of 500 companies, so you can either buy stocks in these companies or you could invest in an S&P500 index fund.
Another approach is to trade the S&P 500 via contracts for difference (CFDs), a derivatives product that allows you speculate on index price movements. This is very different to index fund investing as it's much riskier and you're using leverage to amplify profits and losses.
It's all a little vague, but when you hear of someone "trading the S&P500" in Australia, they're most likely referring to CFD trading. "Investing in the S&P 500 index" on the other hand is associated more with index funds.
It's important to understand that all of these approaches vary significantly in terms of risk.
As a general rule, investing in a single company is riskier than investing in an index fund, while index CFD trading is much riskier still and should only be attempted by experienced traders.
How to find an S&P 500 index fund
Index funds can be either listed on a stock exchange as exchange traded funds (ETFs) or as unlisted funds. There are very few differences between unlisted funds and ETFs and many fund managers such as Vanguard and Blackrock offer investors both options.
If you're new to investing, ETFs can be easier to access because you can invest in them through any regular share trading platform. ETFs also have a lower minimal investment requirement of a few hundred dollars rather than a few thousand dollars for unlisted funds.
To help get you started, here's a list of S&P500 ETFs in Australia to date:
- iShares S&P 500 AUD Hedged ETF: (IHVV)
- iShares S&P 500 ETF:L (IVV)
- BetaShares FTSE RAFI US 1000 ETF SPDR S&P 500 ETF Trust: (QUS)
- SPDR S&P 500 ETF Trust: (SPY)
- BetaShares S&P 500 Yield Maximiser Fund (Managed Fund) : (UMAX)
- ETFS S&P 500 High Yield Low Volatility ETF: (ZYUS)
How to invest in an S&P 500 ETF
- Find an S&P 500 index fund. Some index funds track the performance of all 500 S&P stocks, whereas others only track a certain number of stocks or are weighted more towards specific stocks. Some are actively managed while others do little more than track the index. Do your research before deciding which is best for you.
- Open a share trading account. In order to invest in an S&P 500 ETF, you'll need to open a trading account with a broker or platform.
- Deposit funds. You'll need to deposit funds into your account to begin trading.
- Buy the index fund. Once your money has been deposited, you can then buy units in the S&P 500 index fund, the same as you would buy stocks. You'll generally pay a small annual fee (called the MER fee) to the ETF fund manager taken out of your returns.
How to invest in S&P 500 stocks
An alternative way of investing in the S&P 500 is to buy individual stocks in the 500 companies listed in the index. You could choose to buy shares in select companies or all 500 of them if you wanted it.
However, buying shares in hundreds of companies is a very expensive method of investing as you typically need to pay brokerage fees on every trade you make. Some of the stocks in the S&P 500 are also valued in the hundreds of dollars, so you'd need to invest thousands of dollars in order to get exposure to all companies in the index.
If you're looking to diversify your portfolio by investing in the companies in the S&P 500, it's likely going to be a lot cheaper and more efficient to buy an S&P 500 ETF or index fund.
What stocks are in the S&P 500?
The S&P 500 comprises 500 of the largest US companies by market capitalisation, which means it includes some of the most recognisable and popular stocks in the world. These include the following:
- Alphabet (GOOG)
- Amazon (AMZN)
- Apple (AAPL)
- eBay (EBAY)
- Facebook (FB)
- JPMorgan Chase (JPM)
- McDonald's (MCD)
- Microsoft (MSFT)
- Netflix (NFLX)
- Nike (NKE)
- Royal Caribbean Cruises (RCL)
- Tesla (TSLA)
- Twitter (TWTR)
- Walt Disney Company (DIS)
Compare S&P 500 trading platforms
Important: Share trading can be financially risky and the value of your investment can go down as well as up. “Standard brokerage” fee is the cost to trade $1,000 or less of ASX-listed shares and ETFs without any qualifications or special eligibility. If ASX shares aren’t available, the fee shown is for US shares. 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.
Why should I invest in the S&P 500?
The S&P 500 features some of the largest and most successful companies in the world and has historically given investors a decent return on their investment.
If you only invest in stocks available on the Australian Securities Exchange (ASX), you'll be limited in the number of stocks you can buy. Investing in an S&P 500 index fund or opening a trading account that gives you access to the US stock market will let you diversify your portfolio and open up the potential gains offered by US stocks.
Is now a good time to invest in the S&P 500?
Like most stock indices, the S&P 500 has seen significant drops in 2020 as a result of the coronavirus pandemic. While those who invested in the S&P 500 at the start of the year will have lost money, many investors will see the recent crash as a good opportunity to buy S&P 500 stocks or funds.
Historically, the S&P 500 has had an average annual compounded return of 7.5%. Since 2009, the index has been profitable every year apart from 2018, but it remains to be seen how it will fare in 2020.
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