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How to invest in the S&P 500
You can still invest in the S&P 500 even though you live in Australia. Here's how to get started purchasing individual shares or S&P500 exchange-traded funds.
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
Choose a broker that offers either US stocks or S&P 500 exchange-traded funds (ETFs).
Provide ID and fund your account.
Research the different ETFs and stocks available and compare prices.
Select your S&P 500 index fund or stocks.
Purchase your ETF or stocks by setting a buy price or using a "market order".
What is the S&P 500 index?
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$15 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.
Finder survey: Are Australians worried about a stock market crash in the next 12 months?
Response
A little
51.29%
Not at all
37.85%
Yes very concerned
10.86%
Source: Finder survey by Pure Profile of 1004 Australians, December 2023
Investing in the S&P 500 through stocks
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:
Find a broker that allows you to invest in the S&P 500. Not every broker has access to every market. Instead you'll need to find one that lets you invest in US stocks. When choosing a broker keep in mind where you want to trade, the fees with trading and any additional fees the broker says it will charge.
Do your research. If you're going to buy an individual share or basket of shares (usually more desirable), you should understand the ins and outs of the business you own. After all, you wouldn't just give your money away, so you shouldn't just invest in any old share. Instead learn the business's current balance sheet, future opportunities and fair price to pay for the shares.
Deposit funds. You'll need to add funds into your account before you can buy any shares.
Buy the index fund. Once your money has been deposited, you can then buy stocks in the S&P 500. You'll generally pay a small annual commission fee and foreign exchange fee when you trade US stocks.
Review. Once you've purchased the stocks, it's important to keep an eye on the business's performance. While this doesn't necessarily mean the company's share price (although it can be an indication), you will need to actively monitor how the business is performing compared with your expectations.
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Which companies make up the S&P 500?
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 as of 12 February 2024, 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, some 30 years ago and just left it through the dot.com crash, GFC and COVID downturn, it would be worth $176,155 in 2023. 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.
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.
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, which is taken out of your returns.
List of S&P 500 index funds in Australia
To help get you started, here's a list of S&P 500 ETFs in Australia to date:
iShares S&P 500 AUD Hedged ETF: (IHVV)
iShares S&P 500 ETF:L (IVV)
BetaShares S&P 500 Equal Weight ETF (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)
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S&P 500 Market Update: April 2024
2 Feb 2024: The S&P 500 surged to a new record, closing at 4958.61 points, bolstered by solid earnings and strong January job growth. The index increased by 1.07%, with significant contributions from Meta Platforms, which soared 20.3%, and Amazon.com, up 7.9%. This period marked the fourth week of consecutive gains, reflecting investor optimism and adjustments in expectations for Federal Reserve rate cuts.
17 Jan 2024: The S&P 500 experienced a 1.5% decline in a day due to easing expectations of Federal Reserve rate cuts, amid a broader risk-off sentiment in global markets. This downturn was influenced by various factors including rising bond yields and geopolitical tensions.
29 Dec 2023: The S&P 500 closed the year with a 5% increase, supported by diminishing inflation and relaxed geopolitical concerns. This uplift, a rebound from previous downturns, indicates renewed investor optimism amid prudent monetary policies.
6 Nov 2023: The S&P 500 index officially fell into a correction in late October, after falling more than 10% from its February peak. This is thanks to ongoing inflation and conflict in the Middle East.
6 Sept 2023: The S&P 500 index has flat over August as reporting season wrapped up.
1 Aug 2023: The S&P500 index was relatively flat over July, rising around 2.99% as investors weigh upcoming earnings results in the US.
5 July 2023: The S&P 500 index is up over 16% YTD bolstered by a tech stock rally as inflation cools and central bank interest rate hikes take a pause.
29 June 2023: US stocks jumped as positive economic data helped to ease recession fears. US jobless numbers dropped sharply and first quarter GDP data was revised as better than expected.
How to "trade" the S&P 500
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.
Disclaimer: General information only. All forms of investments (and in particular, trading CFDs, commodities and forex) carry significant risk, including the risk of losing more than the invested amounts, market volatility and liquidity risks. Past performance is no guarantee of future results. Such activities are not suitable for most investors.
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.
Should you choose an index fund or buy individual shares?
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.
The bottom line
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.
Frequently asked questions
Yes, you absolutely can. You can invest in what is known as an exchange-traded fund (ETF). If you have a market tracking fund, you will take a small position in each of the 500 companies on the S&P 500 traditionally based on market capitalisation. This means you'll own more of the larger companies and less of the smaller ones, although you can get an equal weighted fund.
The S&P 500 was officially created in 1957, but its origins date back a little further to 1923. Back then it wasn't quite the S&P 500, it was a smaller index.
When the series first started, it included 233 companies and covered 26 industries.
Fast forward 30 years to 1957 when the S&P 500 expanded into the largest 500 companies in the world.
While past performance isn't necessarily a guarantee of future success, if you look back, investing in the S&P 500 has been a strong investment. Due to the sheer size of the market and the exposure to a broad range of businesses, it has been seen as one of the safer investments you can make.
If you had invested $10,000 in the S&P 500 at the beginning of 1980, you'd have around $1,003,074 according to officialdata.org.
This means your investment returns are in total 9,903.75%, or 11.38% a year.
According to the site, this would let you beat inflation by 2,684.74%, or 8.09% per year.
The S&P 500 has had an average return of 11.38% over the last 40 years, but like all market indexes it doesn't have a straight line in terms of performance.
Looking back, its worst performing year was in 1931 when returns were negative 47.07% (although it wasn't 500 businesses back then). Its best year was just 2 years later in 1933, when the market returned 46.59%.
If you take from 1957, when it was the S&P 500, the market index's worst year was negative 38.49% in 2009 and its best year was in 1995 when investors gained 34.11%.
Taking a historical perspective, if you invest enough money and have a long-term time horizon you can become a millionaire through the market.
For example, if you invest $100 a week or $5,000 a year for the next 40 years and assume an annual return rate of 8% (which is lower than the market average) you would walk away with just shy of $1.4 million.
Important information: Powered by Finder.com.au. This information is general in nature and is no substitute for professional advice. It does not take into account your personal situation. This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for most investors. You do not own or have any interest in the underlying asset. Capital is at risk, including the risk of losing more than the amount originally put in, market volatility and liquidity risks. Past performance is no guarantee of future results. Tax on profits may apply. Consider the Product Disclosure Statement and Target Market Determination for the product on the provider's website. Consider your own circumstances, including whether you can afford to take the high risk of losing your money and possess the relevant experience and knowledge. We recommend that you obtain independent advice from a suitably licensed financial advisor before making any trades.
Kylie Purcell is the senior investments editor and analyst at Finder. She has completed a Certificate of Securities and Managed Investments (RG146) and specialises in investment products including online brokers, robo-advisors, stocks and ETFs.
Hi there, I’m new into the investing market and interested to invest in the SP500. There are so many brokers out there but how do i know which is the best broker option?
It’s great that you’re exploring investment options in the S&P 500. Choosing the right broker is crucial, and there are indeed many options out there. To help you make an informed decision, you can check out Finder’s comprehensive guides on investing in the S&P 500 and the best online share trading platforms.
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Hi there, I’m new into the investing market and interested to invest in the SP500. There are so many brokers out there but how do i know which is the best broker option?
Hi Sabby,
It’s great that you’re exploring investment options in the S&P 500. Choosing the right broker is crucial, and there are indeed many options out there. To help you make an informed decision, you can check out Finder’s comprehensive guides on investing in the S&P 500 and the best online share trading platforms.
Hope it helps,
Cheers