What is the S&P 500 and how do you invest in it?

Today, we're going to explain what the S&P 500 is, why it might be worth investing in and how to invest in it. And we promise it's far easier to understand than any of the typical investor buzzwords.

What is the S&P 500?

It's really simple. 

S&P is a company called Standard & Poor who make financial market indexes. This particular index tracks the performance of the 500 largest companies in the United States that are listed on the stock market. By investing in it, you're investing into the growth of the United States' economy. 

So what is an index then?

Imagine noting each price movement of Apple, Microsoft and 498 other companies all at once and then creating one large stock (or index as it's known) that factors in all these movements at the same time. Well, that's exactly what the indexes do (and good job too 'cause ain't nobody got time for that). Indexes will take all factors into account that affect a stock’s price, such as its market capitalisation. 

🤓 Nerd moment – the U.S. is the strongest economy in the world, hence why people across the land invest in it. Companies in the S&P 500 make up around 80% of the U.S. stock market's value.

Now, each company isn't equally weighted 1/500th in the S&P. The big timers like Amazon and Tesla have a bigger effect on it due to their size. The bigger market share a company has, the more effect it has on the stock market.

Why invest in the S&P 500?

Here's the best part – you don't need to invest in 500 stocks individually. As the index is already made, you just need to invest into a mutual fund or ETF. One well known example is the Vanguard 500 Index Fund.

🤓 Nerd moment – what’s the difference between an ETF and a mutual fund? An ETF can be purchased on a stock exchange and its price will move up and down whilst the stock market is open. Mutual funds on the other hand, are purchased from a broker, financial advisor or a fund company and has its price set at the start of the day.

A lot of people invest in the S&P 500 because:

• It has averaged better returns than a typical bank (around 10% since it began in 1957)

• There's no need to pick individual stocks

• You are automatically diversified across different industries

• The United States is an economy with strong growth potential

As long as you're comfortable with what you're investing in, then forget pulling all-nighters and reading up on individual stocks. Instead, sit back, pour yourself a cold drink and kick your feet up. Because investing just became as simple as tapping a few buttons on your phone.

✏️ Scoop tip – the S&P 500 does have plenty of benefits, but it's not the be-all and end-all. It only exposes you to stocks in the U.S. and not in other countries.

There you have it! Got any more questions on the S&P 500? Head over to the app, add me (@ashoo) and ask away!

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As with all investing, your capital is at risk.

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