How to invest in the S&P 500
The S&P 500 is one of the most popular and steady performing stock indexes in the world. We explain why it’s so popular with investors and how to buy in.
- You can invest in the S&P 500 through ETFS and index funds and there is no shortage of available options to New Zealand investors.
- There is no guarantee of growth with any investment but since it began the index has averaged an annual return of about 10%.
- The S&P 500 is seen as a way to invest in the overall health of the US stock market.
Many people view investing in the S&P 500 as a way to invest in the overall US stock market, and it can be a good choice for New Zealanders who are looking to diversify their investment portfolios.
We will explain what the S&P 500 is, how you can invest in it, and some pros and cons to consider before making your decision.
What is the S&P 500?
Very basically, a stock market index is a collection of stocks that are used to track the performance of a particular market or sector. The S&P 500, as we mentioned, consists of 500 large US companies across a variety of industries.
It is one of the oldest and most widely-followed indexes in the world, and it is often used as a barometer for the overall US stock market.
The S&P 500 is not just any collection of stocks, however; the companies included in the index are selected by a committee at Standard & Poor’s, a leading financial services company.
To be eligible for inclusion in the S&P 500, a company must be US-based, have a market capitalization of at least $14.6 billion, and meet specific other criteria.
The index is weighted by market capitalization, meaning that the larger companies have a greater impact on the index’s movements.
For example, if Apple (AAPL), the largest company in the S&P 500 by market cap, rises by 1%, the index would improve by much more than if Embecta Corporation (EMBC), the lowest-weighted company, experienced the same rise.
What companies are in the S&P 500?
Organized by index weight, here are the top 10 companies in the S&P 500 as of September 2023.
- Apple Inc. (APPL)
- Microsoft Corporation (MSFT)
- Amazon.com Inc. (AMZN)
- NVIDIA Corporation (NVDA)
- Alphabet Inc. Class A (GOOGL)
- Alphabet Inc. Class C (GOOG)
- Tesla Inc (TSLA)
- Meta Platforms (META)
- Berkshire Hathaway Inc. Class B (BRK.B)
- Exxon Mobil (XOM)
Just outside the top 10 are other big market players like Visa, Proctor & Gamble, JPMorgan Chase, Home Depot, Mastercard, Chevron, Pfizer, and Coca-Cola.
Other huge brands like Disney, Walmart, and McDonald’s are also on the list, as it is meant to represent the entire spectrum of US companies.
Why is it such a popular investment option?
The S&P 500 is popular because it offers several advantages to investors.
- Diversification: One big reason to invest in the S&P 500 is diversification. When you invest in the index, you are essentially investing in 500 different companies at once, which can help to mitigate some of the risks associated with investing in individual stocks.
- Liquidity: Another advantage of the S&P 500 is liquidity. The index is highly traded and there are several exchange-traded funds (ETFs) that track the index, so it is easy to buy and sell shares.
- Performance: The S&P 500 has a long history of strong performance. Since its inception in 1957, the index has averaged an annual return of about 10%. Of course, past performance is no guarantee of future results, but the S&P 500’s long-term track record is hard to ignore.
With these advantages, it’s no wonder that the S&P 500 is one of the most popular targets for Kiwi investors, even if it is a US-based index.
Your options for investing in the S&P 500
Because these are US companies, you might wonder how New Zealanders can invest in the S&P 500. Fortunately, there are a few different options available.
Exchange-traded funds (ETF)
ETFs are investment vehicles that own a basket of assets (in this case, the stocks in the S&P 500), and they trade on stock exchanges just like regular shares.
This is probably the easiest way for New Zealanders to invest in the S&P 500, as many ETFs track the index and can be purchased through a broker.
The idea with ETFs is that you get the diversification of an index fund without having to purchase each stock. This can be helpful if you don’t want to put all your eggs in one basket, so to speak.
Your options for investing in an S&P 500 ETF are:
- Smartshares US 500 ETF (USF)
- Vanguard S&P 500 ETF (VOO)
- iShares Core S&P 500 ETF (IVV)
- SPDR® S&P 500® ETF Trust (SPY)
Index funds are similar to ETFs, but they are not traded on stock exchanges. Instead, they can only be purchased directly from the fund company (learn more about ETFs and index funds in our guide).
Kernel Wealth offers the S&P 500 index fund.
Of course, you can also invest in the S&P 500 by buying shares of one or more companies that are included in the index. This might be a good choice if you have your eye on a particular company, but it will require more research and effort than investing in an ETF or index fund.
Fortunately, in New Zealand, we have no shortage of platforms through which you can invest in US shares.
Share trading platforms that let you invest in the S&P 500
The following services provide access to US stocks and US-listed S&P 500 ETFs.
- Tiger Brokers: Tiger Brokers is keen to impress Kiwis with one of the widest ranges of investment options available and some of the lowest fees out there (check out our share trading platform fee comparison). Brokerage fees for US stocks and ETFs starts from just USD $2. See our Tiger Brokers review.
- Sharesies: Sharesies is still one of the most popular share trading platforms in NZ, despite its fee hike in early 2023. You can also invest in ETFs, including some that track the S&P 500. For US trades, Sharesies charges a 1.9% transaction fee of the value (capped at US $5).
See our Sharesies review.
- Stake: Another popular option for online trading, Stake offers commission-free trading for US stocks and ETFs, though it does take a larger exchange rate when depositing.
See our Stake review.
- Hatch: Hatch is a newer platform that offers a flat $3 trading fee for anything under 300 shares. They don’t have a mobile app yet, but they do have an excellent website that is easy to use.
See our Hatch review.
- Jarden Direct: The NZ-based brokerage is more expensive than most for smaller investments, but it does offer more in-depth market analysis than most of its competitors.
Be sure to thoroughly compare trading platforms to make sure you are working with a solution that fits your needs. Also remember that when investing in the stock market, there is the possibility of losing money. Invest wisely and diversify your portfolio whenever possible.
Pros and cons of investing in the S&P 500
There are a few key benefits that make the S&P 500 an attractive investment for many people. First, it offers exposure to a broad range of large US companies across different industries, which can help to diversify your investment portfolio.
Second, because the index is weighted by market capitalization, it tends to be less volatile than indexes that are weighted by other factors (such as share price). This means that you may experience fewer ups and downs in your investment, which can be helpful if you have lower risk tolerance.
Of course, there are also some potential drawbacks as well. One is that, because it is weighted by market capitalization, the index may be less representative of the overall US stock market than other indexes (such as the Dow Jones Industrial Average or the Russell 3000).
Another potential downside is that because it only includes large US companies, the S&P 500 may not offer the same potential for growth as investing in small- or mid-sized companies.
Each of these pros and cons should be weighed against the strengths and weaknesses of the rest of your portfolio to determine if the S&P 500 is right for you.
Investing in the S&P 500 can be a good way to gain exposure to the US stock market, and it can be especially attractive to New Zealanders looking to diversify their portfolios.
However, as with any investment, there are risks involved, and you should always do your research before making any decisions.