Invest In Sp500 With Fidelity: A Step-By-Step Guide

The S&P 500 is a stock market index composed of 500 leading U.S. companies, and it is often considered a proxy for the overall health of the U.S. stock market. While you cannot directly invest in the index itself, you can invest in an index fund or exchange-traded fund (ETF) that tracks the S&P 500. Fidelity offers a variety of resources and tools to help investors get started with investing in the S&P 500, including mutual funds and ETFs that mirror the performance of the index.

You can't buy the S&P 500 directly, but you can buy funds that track it

You cannot buy the S&P 500 directly. The S&P 500 is a stock market index, which is a collection of 500 large public U.S. companies. However, you can invest in the S&P 500 by buying funds that track it. These funds are known as index funds or exchange-traded funds (ETFs).

Index funds and ETFs are passively managed investments that aim to replicate the performance of the S&P 500 by tracking it. This means that investors can gain exposure to the S&P 500 companies without having to purchase the individual stock of each company. Investing in an S&P 500 fund can instantly diversify your portfolio and is generally considered less risky than purchasing individual stocks directly.

• Find your S&P 500 index fund: Look for a fund with a low expense ratio, which is the annual fee charged by the fund manager. Some popular S&P 500 index funds include the iShares S&P 500 Index Fund Investor A Shares (BSPAX) and the Fidelity 500 Index Portfolio.
• Open an investing account: You will need a brokerage account to buy investments. If you are investing for retirement, consider using a 401(k) or IRA account, which offer tax benefits.
• Determine how much you can invest: Decide on the amount you can afford to invest regularly and transfer that amount to your brokerage account.
• Buy the index fund: Go to your broker's website and place a trade for the desired number of shares of the S&P 500 index fund. You can also set up a recurring investment schedule to take advantage of dollar-cost averaging.

By following these steps, you can gain exposure to the S&P 500 and benefit from the diversification and potential returns offered by this widely-followed stock market index.

You can buy individual stocks of companies in the S&P 500

You can buy individual stocks within the S&P 500 index, but you cannot directly invest in the index itself. The S&P 500 includes large U.S. companies such as Microsoft, Amazon, Alphabet Inc., Meta Platforms, and Berkshire Hathaway.

Before investing in individual stocks within the S&P 500, you will need to open a brokerage account if you don't already have one. You can use the money deposited into the brokerage account to purchase stocks, which will then be held within that account.

It's important to note that investing in individual stocks within the S&P 500 carries more risk compared to investing in index funds or exchange-traded funds (ETFs) that track the index. Index funds and ETFs provide instant diversification and are generally considered less risky than purchasing individual stocks directly.

Additionally, when considering whether to invest in individual stocks or index funds/ETFs, it's worth noting that the S&P 500 is dominated by large-cap companies, with its 10 biggest constituents accounting for about one-third of the index. This means that the S&P 500 has limited exposure to small-cap and mid-cap stocks, which may have higher growth potential.

S&P 500 index funds are considered less risky than individual stocks

Investing in an S&P 500 index fund offers instant diversification, as it allows you to invest in a broad range of companies within the index. The S&P 500 is composed of 500 leading U.S. companies, providing access to some of the most important and influential U.S. stocks. By investing in an index fund, you can spread your investment across these companies, reducing the risk associated with investing in individual stocks.

Index funds typically carry less risk than individual stocks because they provide diversification and reduce the impact of individual stock volatility on your portfolio. When you invest in an individual stock, your returns are directly tied to the performance of that specific company. If the company performs poorly or goes bankrupt, your investment may lose value or be lost entirely. In contrast, index funds distribute your investment across a wide range of companies, so the impact of any one company's performance is diluted.

Additionally, S&P 500 index funds can be purchased with varying levels of investment. Some funds have no minimum investment requirement, allowing you to purchase them for any dollar amount. Others may have minimum investment requirements, which can range from a few hundred to a few thousand dollars. This accessibility makes S&P 500 index funds more feasible for a wider range of investors.

It is important to note that while S&P 500 index funds offer diversification and reduced risk compared to individual stocks, they still carry the inherent risks associated with stock market investing. The performance of the index fund is tied to the overall performance of the S&P 500. Therefore, if the index experiences a downturn, your investment will also be affected. However, relative to the drawbacks of many other investment types, the risks associated with S&P 500 index funds are generally considered minor, especially when held for the long term as part of a diversified portfolio.

You can purchase S&P 500 index funds and ETFs in a taxable brokerage account

Step 1: Find your S&P 500 index fund

Look at the expense ratio and sales load to determine the cost of the fund. The expense ratio is the percentage of your investment that the fund manager will charge you annually. The sales load is a commission charged by the fund manager. ETFs don't usually charge a sales load.

Step 2: Go to your investing account or open a new one

You can access your existing investing account or open a new one. If you are buying a mutual fund, find a broker that allows you to trade without a transaction fee. If you are buying an ETF, look for a broker that offers ETFs without commissions.

Step 3: Determine how much you can afford to invest

Figure out how much you can invest and how often. You should aim to hold your investment for at least three to five years to allow the market enough time to rise and recover from any major downturns.

Step 4: Buy the index fund

Go to your broker's website and set up the trade. Input the fund's ticker symbol and the number of shares you'd like to buy, based on how much money you've put into the account. You can also set up an investing schedule to buy an index fund on a recurring basis.

Example S&P 500 Index Funds and ETFs

• FXAIX (Fidelity's native mutual fund)
• VOO or SPY (usual ETFs)
• DE Fidelity 500 Index Portfolio
• BSPAX - iShares S&P 500 Index Fund Investor A Shares

You can also invest in the S&P 500 through a 401(k) or IRA

If you're not a confident investor, an S&P 500 index fund could be a good choice for you. Index funds are passively managed funds that aim to match the performance of the market benchmarks they're associated with. An S&P 500 index fund is designed to mimic the performance of the S&P 500 itself, which consists of the 500 largest publicly traded companies today.

The benefit of investing in an S&P 500 index fund is that you get instant diversification in your portfolio. Index funds are also available to investors without the high fees commonly associated with actively managed mutual funds.

If you don't have the time or knowledge to hand-pick a portfolio of stocks, you may decide to invest in an S&P 500 index fund for your retirement portfolio. Over the past 50 years, the index has averaged an annual 10% return. This means that if you were to invest $300 a month in an S&P 500 index fund over 40 years, at that return, you'd end up with almost $1.6 million.

If you're willing to put in the time and effort, however, you may be able to outperform the S&P 500 with a portfolio you put together yourself.

Frequently asked questions