The S&P 500 is the most widely tracked stock market index in the world — and for good reason. Over the past 67 years, it has delivered an average annual return of approximately 10% (before inflation), turning disciplined, long-term investors into millionaires without requiring any special skill, insider knowledge, or active trading. In this guide, we'll walk you through exactly how to invest in the S&P 500, step by step.
💡 Key takeaway: You don't buy the S&P 500 directly. Instead, you invest through index funds or ETFs that track it — available at virtually every major brokerage with expense ratios as low as 0.00%.
What Is the S&P 500?
The Standard & Poor's 500 (S&P 500) is a stock market index that tracks the performance of 500 of the largest publicly traded companies in the United States. It includes household names like Apple, Microsoft, Amazon, Nvidia, Alphabet (Google), Meta, and Tesla — representing every major sector of the US economy.
The index is market-cap weighted, meaning larger companies have a greater influence on its performance. It is widely considered the single best benchmark for the overall health of the US stock market, and by extension, the US economy.
Unlike individual stocks, the S&P 500 gives you instant diversification across 500 companies in 11 different sectors — technology, healthcare, financials, consumer goods, energy, and more. If one company fails, it barely moves the needle.
Why Invest in the S&P 500?
The historical case for S&P 500 investing is overwhelming:
- ~10% average annual return since 1957 (nominal), roughly 7% after inflation
- Consistent long-term growth despite crashes, recessions, and crises
- Instant diversification across 500 companies and 11 sectors
- Ultra-low costs — index funds tracking the S&P 500 charge as little as 0.00%–0.03% per year
- Warren Buffett's recommendation — the world's most successful investor has repeatedly said most people should just buy an S&P 500 index fund
Over any 20-year period in history, the S&P 500 has never delivered a negative return. That doesn't mean it can't happen — but it shows how powerful long-term investing in the index can be.
Step 1: Choose How You'll Invest
You can't buy the S&P 500 directly. Instead, you invest through financial products that track it. The two main options are:
Index Mutual Funds
Index mutual funds pool money from many investors to buy all 500 stocks in the S&P 500. They're priced once per day at market close and are ideal for automated, regular investing (like monthly contributions). Examples include:
- Fidelity FXAIX — 0.015% expense ratio
- Vanguard VFIAX — 0.04% expense ratio
- Schwab SWPPX — 0.02% expense ratio
- Fidelity FZROX — 0.00% expense ratio (zero fee)
Exchange-Traded Funds (ETFs)
ETFs work like mutual funds but trade on stock exchanges throughout the day like individual stocks. They're extremely popular and offer slightly more flexibility. Examples include:
- Vanguard VOO — 0.03% expense ratio
- SPDR S&P 500 ETF (SPY) — 0.0945% expense ratio
- iShares Core S&P 500 (IVV) — 0.03% expense ratio
- Schwab S&P 500 ETF (SCHX) — 0.03% expense ratio
💡 For most beginners: VOO (Vanguard ETF) or FXAIX (Fidelity mutual fund) are excellent starting points. Both are low-cost, highly liquid, and track the S&P 500 with minimal tracking error.
Step 2: Open a Brokerage Account
To invest in S&P 500 index funds or ETFs, you need a brokerage account. Here are the most popular options for US investors:
| Brokerage | Account Minimum | Commission | Best For |
|---|---|---|---|
| Fidelity | $0 | $0 | Beginners, zero-fee funds |
| Vanguard | $0 (ETFs) | $0 | Long-term, buy-and-hold investors |
| Charles Schwab | $0 | $0 | All-around, great customer service |
| TD Ameritrade | $0 | $0 | Active traders, research tools |
| Robinhood | $0 | $0 | Mobile-first, fractional shares |
For most long-term investors, Fidelity, Vanguard, or Schwab are the top recommendations due to their low costs, reliability, and range of account types.
Step 3: Choose the Right Account Type
Where you hold your S&P 500 investment matters enormously for your after-tax returns. The main account types are:
401(k) or 403(b) — Employer-Sponsored Retirement Plans
If your employer offers a 401(k) with a matching contribution, this is always the first place to invest. The employer match is essentially free money — a 100% instant return on the matched amount. Contributions are pre-tax, reducing your taxable income today.
Roth IRA — Individual Retirement Account
A Roth IRA lets you contribute after-tax money that grows completely tax-free. You pay no taxes on withdrawals in retirement. In 2026, the contribution limit is $7,000 per year ($8,000 if you're 50 or older). This is one of the most powerful wealth-building tools available to individual investors.
Traditional IRA
Similar to a Roth IRA, but contributions may be tax-deductible now and withdrawals are taxed in retirement. Best for people who expect to be in a lower tax bracket in retirement.
Taxable Brokerage Account
No contribution limits, no restrictions on withdrawals. You pay capital gains taxes on profits. Ideal once you've maxed out your tax-advantaged accounts.
Step 4: Decide How Much to Invest
There is no minimum amount required to start investing in the S&P 500. Many brokerages allow fractional share purchases, meaning you can start with as little as $1. That said, here are some general guidelines:
- Start with what you can afford — even $50 or $100/month makes a real difference over 20–30 years
- Aim to invest 10–15% of your income — the most commonly recommended savings rate for retirement
- Maximize employer match first — always contribute enough to get the full employer match before investing elsewhere
- Build an emergency fund first — keep 3–6 months of expenses in cash before investing
See How Your Investment Could Grow
Use our free S&P 500 calculator to estimate how much your money could grow over time based on your contribution amount and time horizon.
Try the Calculator →Step 5: Invest Consistently — Dollar-Cost Averaging
One of the most effective strategies for long-term S&P 500 investing is dollar-cost averaging (DCA) — investing a fixed amount at regular intervals (weekly, monthly, or quarterly) regardless of market conditions.
DCA removes the temptation to time the market, which research consistently shows is a losing strategy for most investors. When prices are high, you buy fewer shares. When prices are low, you buy more. Over time, this averages out your cost basis and reduces the impact of short-term volatility.
Most brokerages allow you to set up automatic investments — for example, $200 automatically invested in VOO on the 1st of every month. Set it and forget it.
Step 6: Stay the Course During Market Downturns
The S&P 500 has experienced numerous crashes and corrections throughout its history. The 2000 dot-com crash wiped out nearly 50% of its value. The 2008 financial crisis caused a 57% decline. The 2020 COVID crash dropped 34% in just 33 days. In each case, the market eventually recovered and went on to new all-time highs.
The biggest mistake most investors make is selling during downturns out of fear. Studies consistently show that investors who stay invested through crashes significantly outperform those who try to exit and re-enter the market at the "right" time. Time in the market beats timing the market — every time.
Common Mistakes to Avoid
- Trying to time the market — Studies show that missing just the 10 best trading days in a decade can cut returns in half
- Checking your portfolio too often — Daily or weekly checking leads to emotional decisions. Check quarterly at most
- Paying high fees — A 1% annual fee costs you ~20% of your final portfolio over 30 years. Always use low-cost index funds
- Stopping contributions during downturns — Market dips are actually opportunities to buy more shares at lower prices
- Not starting early enough — Compound interest rewards those who start early. A 10-year head start can double your final balance
How Much Could You Make? A Real Example
Let's say you start with $5,000 and invest $300 per month in an S&P 500 index fund at an average annual return of 7% (inflation-adjusted):
| After | Total Contributed | Portfolio Value | Investment Gains |
|---|---|---|---|
| 10 years | $41,000 | $56,800 | $15,800 |
| 20 years | $77,000 | $163,900 | $86,900 |
| 30 years | $113,000 | $379,400 | $266,400 |
| 40 years | $149,000 | $810,500 | $661,500 |
That's the power of compounding over time — your investment gains eventually dwarf the amount you actually contributed.
Final Thoughts
Investing in the S&P 500 is one of the simplest, most proven paths to long-term wealth available to ordinary investors. You don't need to pick stocks, follow the news, or time the market. You just need to start early, invest consistently, keep costs low, and stay the course through market volatility.
Open a brokerage account, choose a low-cost S&P 500 index fund, set up automatic monthly contributions, and let compounding do the rest. That's it. The math takes care of everything else.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Past performance does not guarantee future results. Consult a qualified financial advisor before making investment decisions.