The best ETF’s to invest in the S&P500
Are you considering investing in the S&P 500? Then you can easily do so with an ETF! In this article, we will discuss how and where you can invest in the S&P 500 using an ETF.
You need an account with a reliable broker to invest in S&P 500 ETF’s. In the overview below, you can find the best brokers with which you can buy S&P 500 ETF’s:
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What are the best S&P 500 ETFs?
The best S&P 500 ETFs are the Vanguard S&P500 UCITS ETF and the iShares Core S&P 500 ETF.
Vanguard S&P500 UCITS ETF (IE00B3XXRP09)
The Vanguard S&P 500 UCITS ETF is very suitable for investments in the S&P 500. With an annual cost percentage of only 0.07%, you lose only a minimal amount in transaction costs.
It’s good to know that Vanguard, the organization behind this ETF, has no profit motive. They have often lowered the fund’s costs in the past, which can be a good reason to choose this ETF.
The iShares variant of the S&P 500 ETF is also definitely a good choice. The cost percentage for this ETF is the same as for the Vanguard variant, at 0.7%. However, the iShares has a larger volume, which can give it higher liquidity.
However, iShares lowers costs less frequently. Instead of lowering costs, you see that they often launch a new product. When selecting an ETF, you can therefore decide whether you prefer a more reliable brand (Vanguard) or a larger fund (iShares).
What are S&P 500 ETFs?
An ETF is an exchange-traded fund in which you can invest. Because the fund is listed on the stock exchange, you can easily buy and sell your participation at any time. An ETF normally passively tracks an underlying index.
In the case of an S&P 500 ETF, the S&P 500 is tracked: this is an index that contains the largest 500 listed companies in America. With the S&P 500, you can therefore invest in the price development of the American stock market.
Would you like to read more details about how ETFs work? Then read our article explaining ETFs:
How to buy an S&P 500 ETF?
Buying an S&P 500 ETF is easy: you only need an account with an online broker. I use eToro for buying and selling ETFs because they do not charge transaction fees on funds from the core selection. Use the button below to open an account with eToro:
Within your eToro account, you can use the search box to quickly find the right fund. You can enter the name of the fund or the so-called ISIN code. Then, click the buy button to place an order.
You can fill in how many shares you want to buy in the order screen: once you have done this, the shares will be added to your account immediately.
How to choose a suitable S&P 500 fund?
When selecting a suitable S&P 500 ETF, pay particular attention to size and costs. A large fund is often more liquid, meaning that you can exit more easily if you like. The spread of a larger fund is also smaller, which makes your transaction costs lower. The spread is the difference between the buying and selling price of the ETF.
In addition to size, pay close attention to costs. The costs of ETFs can vary widely. On average, S&P 500 funds are very inexpensive, as there is a lot of competition and the product is extremely popular. Therefore, you actually pay less than 0.1% in transaction costs.
Is investing in an S&P 500 ETF wise?
Whether investing in an S&P 500 ETF is wise depends largely on your personal situation. A major advantage of investing in an S&P 500 ETF is diversification: by investing in different funds, you avoid one poorly performing stock derailing your entire investment portfolio.
However, it is important to remember that the S&P alone does not lead to good diversification within your portfolio. With an S&P 500 ETF, you only invest in America. Within the fund ten companies determine more than 25% of the fund’s price movement because they are relatively large. Therefore, it is advisable not to invest only in an S&P 500 ETF if you want to apply extensive diversification.
Finally, pay close attention to the exchange rate: the S&P 500 only invests in American companies, so the value of the dollar can have a significant impact on your investment results. When the dollar weakens, you can lose money.
Frequently Asked Questions about S&P 500 ETFs
An S&P 500 ETF offers more diversification than an individual stock. However, this does not mean that investing in S&P 500 ETFs is risk-free. For example, you are exposed to market risk: when the overall market decreases in value, the S&P 500 often follows suit. You also need to consider currency risk: when the US dollar performs poorly, this can significantly affect your returns.
Pay attention to the fees and the size of the fund. It is wise to choose a fund with low fees, as this can increase your returns. Additionally, choose a large fund so that you can easily exit when you need to.
You can invest in a handful of individual S&P 500 stocks. Since a small number of stocks often drive most of the index’s returns, this can closely mimic the index. This allows you to save on the fixed costs associated with ETFs. The only downside is that when buying individual stocks, you often have to pay transaction fees each time, which can make it less cost-effective.
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