How to invest in the S&P 500 - Times Money Mentor (2024)

When investing for the long-term, some people aim to track the performance of the largest companies in the US via the S&P 500. We explain what this index is, and how your portfolio can mimic its performance.

The US boasts the world’s largest economy. This is illustrated by its gross domestic product (GDP), which is one of the more basic measurements of a country’s economy. At its core, this figure tallies up the monetary value of all the goods and services bought in the country over a certain period.

According to the World Bank, an international financial institution, the US GDP sat at $25.46 trillion in 2022 – comfortably the highest in the world. China, follows in second place at $17.9 trillion while the UK produced $3.07 trillion in the same period.

This hive of activity can make the US an attractive place for investment, and historically, one of the most reliable ways to invest has been to track the performance of the Standard & Poor’s 500 (S&P 500). However, past performance is no indication of future results.

In this article we explore:

• Are there other indices I can consider?

Read more: Investing for beginners

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What is the S&P 500?

Founded in 1957, the S&P 500 is a list of the 500 biggest companies registered in the US. The size of these companies is ranked by market capitalisation, which is a measure of what it would cost to buy every one of its shares.

So, if a company has issued 100,000 shares and one share is valued at £10, its market capitalisation, or market cap, would be £1 million.

As share prices fluctuate so does a company’s market cap so, over the years, many companies have entered and exited the S&P 500.

The latest figures put the average market cap of a company on the S&P 500 at $75 billion (£61 billion). One of the requirements to be part of this index is the company needs to have a market cap of at least $14.5 billion and, below, you’ll see many of these companies clear this requirement easily.

Read more: Is now a good time to buy US shares

Which companies are on the S&P 500?

Below are the ten biggest companies on the S&P 500 according to their estimated market cap on October 26, 2023.

Technology companies dominate the top listings in the S&P 500, with Apple accounting for 7% of its total market cap.

Overall, tech companies contribute to over a quarter of constituents on this index, with healthcare the next most popular sector. It makes up a little over 13% of constituents on this index.

Read more: How to buy shares

How has the S&P 500 performed?

When you hear of how the S&P 500 has performed, it’ll come as a single figure. This figure is made up of the cumulative performance of its participants.

So, if you had £1,000, and you invested this across all 500 constituents proportionally, your returns will mimic the S&P 500’s performance.

Historically, it has made consistent returns over the long-term. According to Standard & Poor’s, over the last 10 years the S&P 500 made an annual average return of over 9% per year. It’s worth noting that this covered a low-interest rate environment, where cheap borrowing helped grow the economy and make equities seem like an attractive investment.

In comparison, over the past three years it generated an annual return of almost 6.7%.

How to invest in the S&P 500 in the UK

If you’re looking to invest in the S&P 500, you can do so via an investment platform. If you haven’t joined one yet, use our guide to find the best apps on the market.

Once you’re signed up, you can individually invest your money across a variety of these companies. But this can be expensive and complicated to maintain.

Luckily, there are Exchange Traded Funds (ETFs) that you can use to track the performance of the S&P 500 more accurately. They may be cheaper than investing in a range of different stocks directly and can be simpler to manage.

An ETF mimics the performance of a particular index or benchmark. It does this by investing in a representative sample of the stocks or sector it’s tracking. So, an ETF which tracks the S&P 500 would invest in all 500 constituents, with the most money in your portfolio sitting with Apple.

Below are some examples of ETFs which track the performance of the S&P 500. These are available across most of your most popular investment apps and platforms.

What charges can I expect?

Whether it be individual shares in companies such as Apple and Amazon, or a basket of weighted shares from an ETF, you are likely to incur charges for investing across the S&P 500.

Fees and charges will ultimately depend on what platform you choose, and how you wish to spread your investments. Typical fees include platform fees, holding fees and transaction fees.

More information on the best and most cost-effective investment platforms on the market are included in our guide.

Are there other indices I can consider?

You may wish to consider tracking other indices.

In Asia, there is the Nikkei 225, which includes the top 225 largest companies on the Tokyo Exchange. Companies on this index include Mitsubishi, the motor manufacturer, and Tokyo Electron Limited, an electronics company.

For something much closer to home, you could track the FTSE 100, which includes the top 100 companies on the London Stock Exchange. This will include investments in HSBC, the global bank, and AstraZeneca, the pharmaceutical company.

In Germany there is the Dax. This includes 40 of the top blue chip companies in the country. Blue chip companies are defined by their ability to produce reliable returns, particularly in periods of volatility.

ETFs tracking this index are traded on the Frankfurt Stock Exchange. Constituents on this index includes Adidas, a sportswear brand, Airbus, the airplane manufacturer, and Deutsche Telekom, the owner of T-Mobile.

Read more: Is now a good time to buy UK shares?