How to Invest in S&P 500: The Top Buy-And-Hold Asset for 2024

If you want to invest in the world’s largest companies, you can’t ignore the S&P 500 Index as it’s home to a dizzying array of multinational giants.

These financial powerhouses include household names such as Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Meta Platforms (META), Alphabet (GOOG), and Tesla (TSLA).

Investors have benefited from exposure to the S&P 500 as the index has returned 18.86% over the past year, according to S&P data to the end of January 2024.

But what is the best way to invest in S&P 500, and how has this index been performing over recent months?

Here, we look at how to invest in the S&P 500 index, outline the pros and cons of getting involved in this area, and consider how to find the best S&P 500 index funds.

Key Takeaways

  • The S&P 500 index features about 500 leading companies in the United States, including household names such as Microsoft and Apple.
  • It’s seen as the most influential indicator of US company stock performance due to the number – and size – of businesses in this index.
  • US stocks have consistently returned 6.5% to 7% per year (after inflation) since about 1800, according to a study by McKinsey.
  • A popular and cost-effective way of getting exposure to the S&P 500 is through index funds and exchange-traded funds (ETFs).
  • The S&P 500 performed exceptionally well at the end of 2023 – and in the opening weeks of 2024, it reached its all-time high.

What Does It Mean to Invest in the S&P 500?

The S&P 500, launched in 1957, is a stock market index made up of around 500 leading US companies.

While several indices focus on US-listed companies, the S&P 500 is considered the best indicator of how stocks are performing.

The Dow Jones Industrial Average, for example, is a more concentrated stock market index of just 30 prominent companies, so isn’t such an accurate bellwether.

While you can’t invest directly into the S&P 500, you can buy shares of the companies appearing in the index or investment funds that track their broad performance.

The S&P 500 is weighted according to market capitalization, calculated by multiplying the stock price of listed businesses by the number of outstanding shares.

The companies in this index hail from a wide variety of business sectors. As of January 31, 2024 information technology had the most significant weighting of 29.5%.

Financials with a 13.1% share, healthcare with 12.8%, and consumer discretionary with 10.3% were the next largest, followed by communication services with 8.9% and 8.6% of industrials.

S&P 500 Sector Breakdown

Best Ways to Invest in S&P 500

So, what is the best way to invest in S&P 500? There are different ways of getting exposure to the companies in this index.

You can buy shares in individual companies, opt for a mutual fund with a focus on the US, choose index funds that track the S&P 500’s performance, or go for an exchange-traded fund (ETF).

They all have various pros and cons, so when you’re deciding on the best way to invest in S&P 500 it’ll come down to your knowledge, preferences, and attitude to risk.

Here, we’ll look at all the options for those looking at how to invest in S&P 500.

Buying Individual Companies’ Stock

Your first option is to buy the shares of individual companies that appear on the S&P 500, such as Apple, Meta Platforms, or Amazon.

This will require you to register with a broker – potentially one of the many online platforms now available – before purchasing.

The benefit of this approach is that you get more benefits from increases in a company’s value. If shares rocket 10%, then the value of your holding will also rise.

However, there are negatives. If the share price falls, then your portfolio will feel the subsequent hit. Therefore, buying shares is not for the faint-hearted.

You’ll also have to bear in mind the cost. Buying just one share in some of the largest companies can set you back hundreds of dollars.

It’s also worth remembering that these high-profile businesses are followed by thousands of analysts so the chances of spotting something they’ve missed are slim.

Buying individual shares will only give you exposure to the company you’ve bought into and not the wider S&P 500 market performance.

Investing in Index Mutual Funds

A popular alternative to buying individual stock is to opt for an Index fund. But what is an index fund and how does it work?

Well, instead of relying on fund managers to pick individual securities they expect to do well, index funds track the overall performance of an entire market index.

They do this by taking shares in every company listed on the tracked index or buying a representative sample.

The good news is there are plenty of index funds to invest in. Many leading fund houses recognize the attractions of so-called passive investing and have launched products to meet this need.

While index funds will have the same broad aims, they may differ in their approach, so deciding which are the best index funds will take a bit of research.

  • You need to pay attention to the costs involved. As most index funds will perform along similar lines, those with the lowest costs – or expense ratios – are preferable.
  • Minimum investment levels should also be a consideration, as well as how long the fund has been running.
  • You should also find out whether the fund has a proven track record in different environments or only performed in good time.
  • Finally, check the dividend yield on offer with rival funds. The dividends paid by large companies can help bolster returns, so keep this in mind when looking at how to invest in an S&P 500 index fund.

One popular provider in this space is Vanguard index funds. Vanguard, founded by the late Jack Bogle in the mid-1970s, pioneered index investing.

Of course, you can also consider active fund managers who have the scope to pick and choose which companies to buy for their portfolios.

However, active fund managers often struggle to beat the index. In fact, 60% of all active large-cap US equity managers underperformed the S&P 500 in the first six months of 2023, according to S&P.

Investing in Index ETFs

When looking at how to buy an S&P 500 index fund, you should also consider exchange-traded funds.

These products have only been around since the early 1990s but have grown in popularity to the point where trillions of dollars have now been invested.

ETFs have similar objectives to index funds in as much as they’re passively managed and aim to replicate the broad performance of the market.

However, they differ in a few ways.

  • Shares issued by an ETF will trade like stocks. This means their value can fluctuate throughout the day. This contrasts with index funds, the price of which is set at the end of the day.
  • Generally speaking, ETFs require less investment to get started, although you’ll need to confirm exactly how much during your research.
  • Remember also that ETFs may work in different ways to one another so you must do your homework before committing any money.
  • When you are choosing between providers, pay attention to the same factors as you would do with an index fund: expense ratios, dividend yields on offer, and minimum investment levels.

How to Invest in S&P 500

Top S&P Performers So Far in 2024

This year has started off spectacularly for many companies, with the best performers up just shy of 40% during January.

Company Ticker Share Price Increase
NVIDIA NVDA $690.03 39.52%
Catalent CTLT $59.80 33.05%
Meta Platforms META $463.38 30.70%
Juniper JNPR $36.85 25.07%
Eli Lilly LLY $698.44 19.36%
AMD AMD $174.45 17.94%
Palo Alto Networks PANW $342.23 15.81%
Merck & Co MRK $126.06 15.71%
Netflix NFLX $561.80 15.62%
Arista Networks ANET $273.11 15.58%
Data compiled from Investing.com and companiesmarketcap.com on February 5, 2024.

Top S&P Performers Over The Past Year

It has been a remarkable year for the best-performing stocks in the S&P 500. Nine out of the top 10 have seen their share price more than double over the past 12 months.

Company Name Ticker Share Price Increase
NVIDIA NVDA $690.03 227.63%
Meta Platforms META $463.38 148.64%
Palo Alto Networks PANW $342.23 118.58%
Builders FirstSource BLDR $178.18 116.90%
Arista Networks ANET $273.11 109.89%
AMD AMD $174.45 107.76%
Eli Lilly LLY $698.44 106.07%
Broadcom AVGO $1,240.00 105.77%
Uber UBER $69.82 104.51%
Fair Isaac Corporation (Fico) FICO $1,254.00 84.67%
Data compiled from Investing.com and companiesmarketcap.com on February 5, 2024. 

Largest Companies In The S&P 500

Company Ticker Market Capitalization
Microsoft Corp MSFT $3.02trn
Apple Inc AAPL $2.91trn
Alphabet GOOG $1.79trn
Amazon.com AMZN $1.76trn
NVIDIA NVDA $1.70trn
Meta Platforms META $1.18trn
Berkshire Hathaway BRK.B $847.57bn
Eli Lilly LLY $661.37bn
Broadcom Inc AVGO $578.87bn
Tesla TSLA $575.87bn
Data compiled from S&P Global and companiesmarket.cap.com as of Feb 5, 2024.

Benefits of Investing in S&P 500

If you invest in the S&P 500 you will be getting exposure to some of the world’s largest companies that are making huge profits from international customers.

Many of these businesses are at the forefront of technological innovation, such as Microsoft and Apple, and are focused on the future development of “AI Everywhere”.

Investors have long benefitted from exposure to US stocks. In fact, they have consistently returned 6.5% to 7% per year (after inflation) since about 1800, according to a study by McKinsey.

It also found the market capitalization of companies making up the S&P 500 more than tripled from about $ 10 trillion in 2001 to $ 32 trillion in mid-June 2022.

“The mean total yearly returns (including dividends) of the S&P 500 from 1996 to mid-June 2022 is 9% in nominal terms, or 6.8% in real terms—in line with historical results,” it stated.

The S&P 500 has also been a great place to invest over recent weeks as it broke through the 4,800 and 4,900 points barriers – and posted six new closing highs, according to S&P.

This also resulted in it recording three consecutive months of gains, with January’s 1.59% uplift following the 4.42% in December and the 8.92% achieved in November.

S&P 500 Historical Chart

Potential Pitfalls Of Investing In S&P 500 And Challenges To Consider

Of course, no investment is guaranteed to rise continually. There’s always the risk that the S&P 500 could end up sliding on the back of adverse corporate or economic news.

Stock markets are notoriously jumpy and may react negatively to interest rate hikes, for example, as this may affect people’s capability to buy from leading S&P companies.

Although the S&P 500 has enjoyed recent strong performance, it’s also endured periods of poor – or lackluster – returns in the past, according to McKinsey analysis.

“The S&P 500 declined in 2000, 2001, and 2002, followed by a 37 percent fall in 2008 and a 22 percent fall in the first half of 2022 – but from 1996 to mid-June 2022, S&P 500 returns declined annually only five times,” it stated.

Even in the good years, not everyone ends up a winner. While the stock price of the best performers has more than doubled over the past year, many haven’t been so lucky.

In fact, the worst have seen their prices sink by up to 60%, according to our analysis of Investing.com data from February 5, 2024.

It’s also worth bearing in mind that the S&P 500 won’t give you exposure to small capitalization US stocks, so you’ll miss out if they perform strongly.

You should also consider the potential impact on stocks of upcoming economic and political factors, with the latter being key this year, according to a report from S&P.

“The focus on politics will also continue to grow, as the possible Biden-Trump rematch buzz has already started to filter into the general public, even though the primaries have just started,” it stated.

The Bottom Line

Is an S&P 500 index fund a good investment? This is impossible to answer as it depends on your investment goals and the index’s performance. However, if you’re looking for broad exposure to some of the largest and most influential US-based businesses, then it’s worth considering.

Of course, the investment golden rules must always apply: Invest for the longer term and only commit money that you can afford to lose.

As far as knowing how to invest in S&P 500, it depends on whether you want to pick and choose a few individual stocks or get exposure to the performance of the entire index.

If it’s the latter, then an index fund or exchange-traded fund will give you cost-effective access to some of the largest and most exciting companies on the planet.

FAQs

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Rob Griffin

Rob worked on the business desks of the Yorkshire Post, The Guardian, Sunday Business, and Sunday Express before going freelance in 2002. Since then he has written regularly for national newspapers, consumer magazines, trade titles and websites. His work has appeared in titles such as the Mail on Sunday, Sunday Telegraph, Independent, Daily Express, Citywire, and FT Adviser.