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How to Buy S&P 500 and Instantly Diversify Your Investments!

Not everyone wants to get into single-stock investing, and quite frankly, most of us shouldn’t even try. Index investing is recommended for the average individual, so it’s smart to learn how to buy S&P 500 for much of your investments

Experts tell us that trying to time the markets by trading specific stocks doesn’t work out well for the majority of folks. 

The iconic investor and CEO of Berkshire Hathaway, Warren Buffett, often tells people to steer clear of picking single stocks. At the company’s annual meeting in 2020, he even recommended the S&P 500 as the best investment option for most people.

When the Oracle of Omaha praises an investment, that’s a pretty solid endorsement! So here’s how to buy S&P 500 — it’s pretty simple. myths of investing - stock picking vs index funds

What Is the S&P 500?

The S&P 500 refers to a stock index made up of about 500 different companies. They’re not necessarily the 500 largest in the U.S., but they are arguably some of the most important. 

Companies included on the index are cap-weighted. That means stocks are weighted based on their total market value. (The value of free-floating shares based on current market price). 

The S&P 500 is an expansive section of investments, since it holds 80% of the total stock market value. Over $11.2 trillion is invested there!

Plenty of easily-recognized companies are on the index.

For example, here are the top five companies by index weight as of January 2021:

  • Apple
  • Microsoft
  • Amazon
  • Facebook
  • Tesla 

Financial experts often refer to the S&P 500 as a benchmark indicating the health of the U.S. stock market. 

Why Invest In the S&P 500?

There are several reasons why learning how to buy S&P 500 can benefit most investors. 

  1. You don’t need to be an expert to invest wisely. 
  2. The S&P 500 has a long history of steady returns (about 10% annually).
  3. Fees are typically low on index funds. 
  4. Risks are fairly low. 
  5. Buying shares of an index fund with many of the S&P 500 companies automatically diversifies your investments. 

Plenty of experts in finance and the stock market have done the hard work of researching companies so you don’t have to. You don’t need a degree in finance to choose a good investment in the S&P 500. 

The low fees on many S&P 500 index funds make them a sound option for most of us today. The historically good returns also make them fairly low-risk. 

And who doesn’t love automatic diversification? The average person doesn’t have time to research 500+ companies, let alone set up trades on all of them. 

Related: Can Your Mutual Funds Beat the Stock Market?

How to Buy S&P 500 How to Buy S&P 500 Today

When you’re ready to start investing in the S&P 500, you won’t buy shares of all 500 companies directly. (What a pain that would be!) Index funds are a great strategy for how to buy S&P 500 today. 

Before choosing how to buy S&P 500 as part of your investments, look into several factors. 

Signs of a Good S&P 500 Index Fund

Here are several signals that a fund is a solid option for investment in the S&P:

  1. A low (or zero) expense ratio, to keep your fees on the investment minimal. 
  2. High Assets Under Management (AUM). 
  3. Low index tracking error, meaning the fund does well at matching the performance of the entire S&P 500. 

There are a couple of terrific S&P 500 funds you can invest in through Vanguard, so let’s talk about how to buy S&P 500 with them.

Top S&P 500 Options 

The Vanguard S&P 500 Index Fund Admiral Shares (VFIAX) is one simple and effective way to buy into the S&P 500. It’s a mutual fund. The 5-year average return on VFIAX is 11.44%.

Then there’s the Vanguard S&P 500 Index Fund ETF (VOO), which is an exchange-traded fund. It features the same companies as VFIAX and has become quite popular over the past few years.

Four Pillar Freedom explains some key differences between these two Vanguard S&P funds:

  • VFIAX has a minimum $3,000 initial investment, while VOO only requires enough to buy one share. 
  • VOO enables real-time pricing, while VFIAX trades at the end-of-day price. 
  • VFIAX is best if you want to set up automatic recurring investments, as VOO would require a manual set-up each time.

There are multiple other index funds that allow retail investors to put their money into the S&P 500. If you want to know how to buy S&P 500, look up a few of these options. 

Other S&P 500 Index Funds

  • SPDR S&P 500 (SPY)
  • iShares Core S&P 500 ETF (IVV)
  • Fidelity ZERO Large Cap Index

Many of these options have very low expense ratios, which is great because it limits the fees you pay. (Obviously, low fees are a major positive when managing your investments.)

Related: What Is An Expense Ratio (you’ll want to know…believe me!!)

simple investing with vanguard - step oneWhere to Buy S&P 500

Find a good online brokerage where you can open up your investment account. These days, it’s easy to find a quality broker where you can conduct all of your investments online. 

Vanguard is a top choice for many investors, along with other big names like Charles Schwab and Fidelity. A few other possibilities are ETrade, Ameritrade, and Interactive Brokers.

You can buy shares of the S&P 500 as you invest in your retirement accounts. Your 401(k), 403(b), Roth IRA, and others are a good place to start. 

Related: Simple Investing – Save Time, Earn More (with step by step instructions to get started with Vanguard!)

If you’re maxing out these types of accounts, a taxable brokerage account is a great next step. You can select a reputable S&P 500 index fund, start making deposits, and let your money grow for years. 

Related: Why You Should Start Investing At A Young Age

Long-Term Investing in the S&P 500 

The historic 10% average annual returns on the S&P 500 are an average, meaning the index doesn’t bring 10% returns every year. The stock market fluctuates constantly. 

You need to be invested for many years to get the best assurance of positive returns on your own investment. And of course, timing is important as you don’t want to retire at the start of a recession. But remember how to buy S&P 500 as a fairly passive investment strategy. 

Related: The Absolute Easiest Way to Make a Million Dollars

Of course, you should always do a proper amount of your own research—and consult experts—before making investments. 

Do you like the S&P 500? What’s your preferred investment strategy?

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AUTHOR Kate Underwood

Kate Underwood loves reading, talking, and writing about all things in personal finance. She made the switch from her high-school teaching career a few years ago to become a full-time freelance writer and editor and can be found at kateunderwoodwriter.com.

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