The S&P 500, or more accurately the Standard & Poor's 500, is a stock index generally made up of 500 of the largest U.S. companies that are traded on U.S. stock markets (it has a few additional rules that make the list a bit more selective). Most of the stocks in it, from Microsoft (MSFT -0.14%) to Apple (AAPL -0.59%) to Johnson & Johnson (JNJ -0.39%), are household names. If you want to invest in companies you know and make bets on many of America's biggest businesses, buying stocks on the S&P 500 is one way to do so.
Many of the stocks on the S&P 500 also happen to be expensive. A single share of Apple would set you back around $380. But the good news is that you don't need a lot of money to invest in any of the large companies on the S&P 500 -- or even to invest in all of them.
In fact, if you can afford to buy a penny stock, you can now afford to own any company -- or every company -- in this index. Here's how.
Image source: Getty Images.
Fractional shares open up the door for those with less cash
Today, an increasing number of major brokerage firms allow you to buy fractional shares of a company rather than restricting you to purchasing full shares only. Fractional shares are exactly what they sound like -- fractions or parts of a full share of stock.
While investors have traditionally needed enough money to buy at least one full share before they could own a piece of a company, fractional shares eliminate this barrier to entry. When you invest in fractional shares, you can buy as little as 0.001 of a share (depending on the broker). You just specify what stock you want and the dollar amount to invest, and you'll be able to buy whatever portion of a share you can afford.
If you've got $5 to invest, for example, and decide you want to buy into Facebook (META 1.20%), you could get around 0.022 of a share of this S&P 500 company, which is trading at just over $230 a share (as of July 25).
Where once you'd have been relegated to penny stocks only if you had so little cash to invest, you can now own a small piece of some of the country's biggest companies. And the percentage gains (or losses) you'll attain will be the same as those of any other investor, no matter how many full (or partial) shares they own.
How to buy S&P 500 stocks at penny-stock prices
With fractional shares, you could invest in one or several companies on the S&P 500 even if you've got only a few dollars. But if you've got just $5 or $10 to put in the market, you aren't going to be able to buy too many of the big-name companies on the list even if you're only buying .001 of a share of them.
But you do have another option: You can buy fractional shares of exchange-traded funds (ETFs) that track the S&P 500 index. ETFs trade like stocks but give you exposure to a basket of investments with a single purchase. Funds that track the S&P 500, for example, pool investor money to buy weighted shares of the stocks on the index. So when you buy into an ETF such as the Vanguard S&P 500 ETF (VOO 0.53%) or the SPDR S&P 500 ETF Trust (SPY 0.51%), you get a very small ownership stake in all of the 500 companies on the list.
Vanguard's fund comes in at a price of around $300 for a single share of the ETF, while the SPDR ETF has a higher price tag at around $320 per share (as of July 25). Other S&P ETFs trade for a similar amount. At those prices, if you've got even $1, you could still buy in with some brokers and get your piece of 500 huge American companies for just the price of a few penny stocks.
Should you buy S&P 500 stocks?
While fractional shares enable you to risk much less than if you had to pay full price for an S&P 500 index fund (or for shares in companies on the S&P 500), you're still taking a risk with your money. It's smart to research any equities you're considering investing in carefully and to make sure you're building a diversified portfolio that gives you exposure to companies of all sizes.
Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Christy Bieber has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Microsoft. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.
FAQs
Penny stocks tend to be much riskier than other stocks.
Plus, they are often shares of unproven companies, where there's a very real risk of losing your entire investment. In other words, they simply are not worth buying for most people who want to invest in the market to take a reasonable risk and build wealth.
How to invest in all S&P 500? ›
The easiest way to invest in the S&P 500
The simplest way to invest in the index is through S&P 500 index funds or ETFs that replicate the index. You can purchase these in a taxable brokerage account, or if you're investing for retirement, in a 401(k) or IRA, which come with added tax benefits.
What are Motley Fool's 5 best stocks? ›
That's exactly how these Motley Fool contributors discuss Microsoft (MSFT 1.44%), Pfizer (PFE 6.09%), NextEra Energy (NEE 2.45%), Home Depot (HD -0.67%), and Fiverr International (FVRR 1.56%) Here's why all five companies that have what it takes to be solid long-term investments and are worth buying in May.
How do I buy a portion of S&P 500? ›
You can't directly invest in the index itself, but you can buy individual stocks of S&P 500 companies, or buy a S&P 500 index fund through a mutual fund or ETF.
What is the most successful penny stock? ›
List of the Most Famous Penny Stocks
- Apple Inc. ( NASDAQ: AAPL)
- Amazon (NASDAQ: AMZN)
- Monster Beverages NASDAQ: MNST.
Can you make money with penny stocks? Yes, you can make money with penny stocks, but you can also make money playing the lottery, though you probably won't. To make money in penny stocks, you have to be able to separate the good companies from the bad, and that means you have to be able to analyze companies.
Should I invest $10,000 in S&P 500? ›
Assuming an average annual return rate of about 10% (a typical historical average), a $10,000 investment in the S&P 500 could potentially grow to approximately $25,937 over 10 years.
How to become a millionaire with the S&P 500? ›
If the S&P 500 outperforms its historical average and generates, say, a 12% annual return, you would reach $1 million in 26 years by investing $500 a month.
Why not invest all money in S&P 500? ›
It might actually lead to unwanted losses. Investors that only invest in the S&P 500 leave themselves exposed to numerous pitfalls: Investing only in the S&P 500 does not provide the broad diversification that minimizes risk. Economic downturns and bear markets can still deliver large losses.
What are Motley Fool's 10 foundational stocks? ›
The Motley Fool has positions in and recommends Alphabet, Amazon, Chewy, Fiverr International, Fortinet, Nvidia, PayPal, Salesforce, and Uber Technologies. The Motley Fool recommends the following options: short March 2024 $67.50 calls on PayPal. The Motley Fool has a disclosure policy.
We regularly see similar ads from the Motley Fool about “all in” buy alerts, sometimes also called “double down” or “five star” buys, and they're generally just the type of steady teaser pitch that they can send out all year, over and over with no updates, to recruit subscribers for their flagship Motley Fool Stock ...
What are Motley Fool's double down stocks? ›
Adding to winning stocks can amplify gains. The Motley Fool advises holding onto winning stocks, as they often continue to outperform in the long run. "Double down buy alerts" from The Motley Fool signal strong confidence in a stock, urging investors to increase their holdings.
Should I put all my 401k in S&P 500? ›
Diversification is an important factor, and you'll want to balance having too much in one type of asset. For example, many experts recommend having an allocation to large stocks such as those in an S&P 500 index fund as well as an allocation to medium- and small-cap stocks.
What is the S&P 500 for dummies? ›
What does the S&P 500 measure? The S&P 500 tracks the market capitalization of the roughly 500 companies included in the index, measuring the value of the stock of those companies. Market cap is calculated by multiplying the number of stock shares a company has outstanding by its current stock price.
What is the cheapest S&P 500 index fund? ›
What's the best S&P 500 index fund?
| Index fund | Minimum investment | Expense ratio |
|---|
| Vanguard 500 Index Fund - Admiral Shares (VFIAX) | $3,000. | 0.04%. |
| Schwab S&P 500 Index Fund (SWPPX) | No minimum. | 0.02%. |
| Fidelity 500 Index Fund (FXAIX) | No minimum. | 0.015%. |
| Fidelity Zero Large Cap Index (FNILX) | No minimum. | 0.0%. |
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You only need one S&P 500 ETF
You could be tempted to buy all three ETFs, but just one will do the trick. You won't get any additional diversification benefits (meaning the mix of various assets) because all three funds track the same 500 companies.
Is it safe to invest everything in S&P 500? ›
Generally, yes. The S&P 500 is considered well-diversified by sector, which means it includes stocks in all major areas, including technology and consumer discretionary—meaning declines in some sectors may be offset by gains in other sectors.
What would $100 invested in S&P 500? ›
The nominal return on investment of $100 is $31,787.31, or 31,787.31%. This means by 2024 you would have $31,887.31 in your pocket. However, it's important to take into account the effect of inflation when considering an investment and especially a long-term investment.
Are all S&P 500 index funds the same? ›
While most S&P index funds will have similar holdings, they may vary in terms of their fees, such as expense ratios. Expense ratios are annual fees you pay to help cover a fund's expenses.
