Investing in the S&P 500

So, you’re considering investing in the S&P 500? That’s a solid choice. This index includes 500 of the largest and most reputable companies in the United States. Just think about it: while there are thousands of public companies in the US, the S&P 500 represents about 80% of the total market value. That’s pretty significant.

Basically, putting your money into the S&P 500 reflects a belief that the US economy will keep growing over time, even if there are occasional dips. It’s a straightforward and efficient way to invest in the US stock market without needing to become an investment expert.

You don’t necessarily need to wait for a specific month to start investing either. It can be any month, especially if you’re looking to consistently add to your portfolio over time.

A Smart Way to Invest in the S&P 500 Anytime

One of the smartest ways to get into the S&P 500 is by purchasing a low-cost index fund that tracks it. These funds are designed to mirror the stocks in the index based on their market capitalization, so they generally provide returns similar to those of the S&P 500. Here are three reliable options:

• Vanguard S&P 500 ETF
• iShares Core S&P 500 ETF
• SPDR S&P 500 ETF

The Vanguard S&P 500 ETF, for instance, is a classic choice that diversifies your investment across a wide array of companies, including the well-known “magnificent seven”: Apple, Amazon, Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla. The expense ratio is just 0.03%, which means you’re only paying $3 per year for every $10,000 you invest.

Similarly, the iShares Core S&P 500 ETF also has an impressively low expense ratio of 0.03%, while the SPDR S&P 500 ETF has a slightly higher ratio of 0.0945%. Even with that, it’s still less than $10 annually with a $10,000 investment. All of these funds include approximately the same set of 500 companies.

Another Investment Option for Greater Growth

While investing in a standard S&P 500 index fund generally leads to consistent returns, it doesn’t provide the chance to outperform the market.

If you’re looking for potentially faster growth while still aligning with the US economy, consider the Vanguard S&P 500 Growth ETF. This fund targets companies within the S&P 500 that are classified as “growth stocks.” It focuses on stocks that show significant price increases and revenue momentum.

Currently, it holds 212 different stocks, but about half of its total value is concentrated in the top 10 holdings, with Nvidia making up 12.5% of its assets. This means that if you invest here, you’ll want to be comfortable with that level of concentration. It’s interesting, though, as standard S&P 500 funds have a more spread-out distribution, with only about a third of their total value tied to the top 10 stocks.

Keep in mind that growth ETFs can be more volatile than traditional S&P 500 index funds. For instance, during a market downturn in 2022, the S&P 500 dropped by 18.2%, while the Vanguard S&P 500 Growth ETF experienced a sharper decline of 29.5%.

This table highlights how these funds stack up against each other. It suggests that sticking with a standard low-cost S&P 500 index fund is often a reasonable way to build long-term wealth, as it can be challenging to outperform the stock market overall.