How can I buy an S&P 500 fund? Express News

What is an S&P Fund?

In 1976, registered investment advisor behemoth Vanguard introduced individual investors to the nations’s first mutual fund designed to mimic the S&P 500 Index. That fund is currently known as the Vanguard® 500 Index Fund. Some twenty years later, the first exchange-traded fund (ETF) was launched, which similarly tracked the S&P 500 Index. Today, nearly all major investment firms, including Fidelity and Schwab, offer some kind of S&P 500 fund. The vast majority of firms likewise offer some type of S&P 500 ETF product as well.

Index Funds

With so many brokerage firms offering mutual funds based on the exact same index, one might wonder what distinguishes one fund from another. They may also ponder how investors can discern the fund that’s most suitable to their long-term financial goals, risk tolerance levels, and disposable income.

Key Takeaways

  • Nearly every major U.S. investment firm offers some kind of S&P 500 Index fund.
  • The majority of firms likewise offer exchange-traded funds (ETFs), which similarly track the S&P 500 Index.
  • Companies on the index are not always the 500 largest ones, because illiquid companies are dismissed.

Separating Fact from Fiction with Index Funds

There are several myths surrounding S&P 500 funds. For instance, many people believe that these funds invest in the 500 largest companies that the index presents. However this is not correct, because the stocks comprising the index are chosen by the S&P Index Committee of index analysts and economists, who aim to assemble the leading companies of different industries, in order to more accurately represent a cross section of sectors. The committee also strives to identify companies with the sufficient liquidity to trade nimbly. Case in point: a company whose stock price commands $50,000 per share won’t trade with a high volume.

Another popular myth regarding S&P Index is that it focuses solely on U.S. companies. There is some truth to this, because starting in the early nineties, the S&P Index Committee declared that it would cease adding non-U.S. companies to the index. Consequently, today’s index is almost entirely made of American companies. But it’s important to note that many current U.S. based companies on the list have significant international operations. This is important for many reasons. For example, a U.S. company’s foreign operations are subject to non-U.S. laws that can thwart production and depress the bottom line, as can political unrest that might occur in less stable emerging markets. 

Exchange-Traded Funds

Other options available to investors include exchange traded fund such as a Standard & Poor’s Depository Receipt (SPDR) or the iShares S&P 500 Index ETF, both of which are in fact securities that track the index but trade like stocks.

How to Buy These Products

There are multiple ways to buy S&P 500 index funds or ETFs, including traditional brokers, online brokers, financial advisors and robo-advisors. This extensive ranking of the top online brokers for ETFs and funds can be invaluable to helping you choose the fund that’s best for you.

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