How can you invest in the S&P 500?
You can invest in a separate share, but you can also choose to invest in an index. One of the best known and most popular indices in the world is the S&P index. This index is also called the S&P 500 index.
On this page you can read more about investing in the S&P index. In this way, you can read exactly what the index entails and what the history of the well-known index is. We also look at how you can invest in this stock index yourself.
What is the S&P 500 index?
The S&P index is also called the S&P 500 index or the S&P. This is an American stock index made up of stocks of the 500 largest companies in the United States (measured by market capitalization). By investing in the S&P index, you are actually investing in a ‘basket’ of stocks. You do not invest in a separate stock, but put your assets in all the stocks linked to the index.
How can you invest in the S&P 500 yourself?
Would you like to invest in the S&P 500 yourself? We will list the best methods for you!
Option 1: buy stocks yourself
You can choose to buy the shares in the S&P 500 yourself. You will find 500 stocks in the S&P 500: you will therefore need quite a bit of capital to buy all the shares in the index. It is therefore more practical to make a selection and only invest in a few shares in the index.
If you are going to invest in many stocks, it is important to choose a broker where no commissions are charged. In this way you avoid having to pay a fixed amount for each transaction. At eToro, you can invest entirely free of charge in shares listed on the S&P 500. Use the button to directly open an account with eToro:Your capital is at risk. Other fees apply. For more information, visit etoro.com/trading/fees.
Option 2: speculating with a CFD
Would you like to trade in price changes on S&P index? Then register with an online broker who offers the S&P500 as a trading opportunity. An example of a good broker that allows you to trade in the CFD of the S&P index is Plus500. With a CFD, you can take advantage of price fluctuations on the index in the short term.
Tip: Plus500 has a demo account. With this account, you can practice trading in the S&P 500 for free, using fictitious assets. If trading goes well, you can convert your demo account into a real account. Now you can really start trading in the S&P 500.
Use the button below to instantly open a free demo account with Plus500:72% of retail CFD accounts lose money.
Option 3: Buying an ETF
You can also buy an ETF in the S&P index. You then buy a share in a fund that tracks the price of the S&P one on one. Buying ETFs is recommended when you are focusing on building up assets. With most ETFs, you pay low management costs, making it a good way to invest in US equities.
A good party to buy ETFs is DEGIRO. At DEGIRO you pay no transaction costs for the funds in the core selection. This allows you to invest in the Lyxor ETF SP500 without any transaction costs. Use the button below to directly open an account with DEGIRO:
Option 4: futures on the S&P 500
Futures are derivatives with which you can speculate on the price development of the S&P 500. For most investors, it is not advisable to use futures: your losses can increase quickly, and you need a large capital to invest in futures.
The history of the S&P index
The S&P index was published in 1957. The party behind the index is credit rating agency Standard & Poors. This rating agency is responsible for compiling the index.
The history of the S&P index does not start in 1957, but in fact well before that. Credit rating agency Standard & Poors started keeping an index as early as 1923. In the first years of the index, about 230 companies were linked to it. When exactly 500 companies were linked to the index in 1957, the S&P was created.
Until 1988, the number of companies included in the index by sector was always fixed. Now this is no longer the case. Because the number of companies per sector is no longer fixed, the index can react more quickly to the changing market. Companies are added more quickly, but also deleted more quickly. This flexibility has made the index very popular in recent years. Today, about 90 sectors are represented in the index.
Development of the S&P 500 over the years
The composition of the S&P index
The S&P index is a so-called market value weighted index. When a company is added to the index, the market value of the organization is always taken into account. The market value of the company determines the weighting of the organization in the S&P index. In other words: the company with the largest market value or market capitalization has the largest weighting in the S&P index.
Large companies in the S&P index are currently Apple, Alphabet (Google), Microsoft, ExxonMobil, Amazon, Johnson & Johnson, Facebook, Berkshire Hathaway (the company of Warren Buffett), General Electric and AT&T Inc.
Does the S&P 500 give a reliable picture?
The S&P 500 contains 500 American companies: this gives a reliable picture of the performance of American stocks. Even the most valuable company Apple has only a limited weight within the index. This allows the index to accurately determine how the stock market prices in the country are performing.
The S&P 500 is also very popular among analysts: within the index you will find no less than 90 different sectors, giving you a comprehensive picture of the economic situation within America. This is not the case with the Nasdaq in which only a limited number of sectors are included.
What are circuit breakers?
Since 1987 circuit breakers have been introduced on the S&P 500 index. This decision was taken on black Monday, when the stock market dropped by no less than 23% in a short period of time. When the prices fall by 7%, 13% and 20%, trading is stopped for a quarter of an hour. The pause makes it possible for investors to analyse the situation properly. In this way, the initial panic reaction can be counteracted so that the stock market collapses less quickly in the event of bad news.
Pay attention to the weight
When investing in the S&P 500 it is important to remember that the weight of stocks has an important influence on the price. The largest shares sometimes count up to ten times more than the smallest stocks. A change in the price of the largest 10 companies therefore has a relatively large impact on the price of the S&P 500.
What are the conditions for a company to be included in the S&P 500?
- The company must have an American stock exchange listing.
- The head office must be in America.
- The market capitalization must be at least $5.2 billion.
- A minimum of 250,000 stocks must be issued.
- 50% of the shares must be freely tradable.
- The liquidity & financial health is sufficient.
- Positive profit figures over the last 4 quarters.
- The company must not be a fund or a separate holding company.
When will the index be reweighed?
The weighting of the S&P index is carried out at 4 annual intervals: in March, June, September and December. Stocks that no longer meet the conditions do not have to be immediately removed from the index. This guarantees the stability of the index.
Consider other factors
The index may be affected by acquisitions, divestments, restructurings and dividend payments. It is not only the performance of the companies that influences the price of the S&P 500.
S&P 500 EWI
Since 2003, the S&P 500 EWI or Equal Weight Index has also been in existence. Within this index all companies have an equal weight of 0.2%. Because of this you invest with even more risk diversification in the S&P 500 EWI.