The S&P 500 is a popular way users can invest in the financial markets. This index is utilised by some investors to park their money and potentially earn a passive return. Furthermore, it provides a benchmark of the US equity market.
If, like many others, you are interested in investing in the S&P 500 – you have come to the right place. This guide on How to Invest in S&P 500 UK will explore the entire process.
How to Invest in S&P 500 UK
- Choose a Broker to Invest in the S&P 500 with: The first thing you need to do is find a broker that is both reliable and allows you to invest in S&P 500 tracker.
- Open an Account: Secondly, you will need to open an account with your chosen trading platform. Typically, users need to upload proof of ID/address and enter some personal details.
- Fund Your Account: Before investing, users need to fund their accounts. Usually, users can deposit via credit card, debit card, bank transfer, or even e-wallet.
- Invest in S&P500 UK: Once you have funded your account, you can finalise your investment. Simply search for the S&P 500 index ETF in the search bar and then enter the amount you’d like to invest.
S&P 500 Investment Platforms
The most crucial part when contemplating how to invest in S&P 500 tracker is researching and choosing a suitable stock broker. There are many brokers to choose from these days, so it can be tough to decide.
Below, we discuss each of these brokers, along with what you can expect if you utilise each one.
eToro is a popular brokers when it comes to investing in the S&P 500. Known for its extensive portfolio where you can buy shares, stocks, commodities, and cryptocurrencies, eToro allows users to trade assets with 0% commission. This means you can invest in the S&P 500 index without having to pay a penny in commission fees.
What’s more, eToro is regulated by the Financial Conduct Authority (FCA), which means they offer a secure and reliable way to invest your funds. Also, opening an account at eToro can usually be completed in around 10 minutes. All you need to do is provide proof of ID and proof of address (both of which can be uploaded digitally).
Depositing into your eToro account is also a simple process, meaning you can get this done quickly so that you can invest in S&P 500 tracker. Many deposit options are offered, such as through credit cards, debit cards, bank transfers, and even electronic wallets. What’s more, whether you want to invest £500 or even invest £40k, eToro will never charge a deposit fee.
Finally, eToro offers you more than one option when it comes to investing in the S&P 500. You can invest directly into the index (using the ticker SPX500), allowing you to gain immediate exposure. Alternatively, you can utilise one of eToro’s S&P 500 ETFs, offered by both themselves and Vanguard. You can even invest in actively managed funds that aim to achieve returns that exceed the S&P 500 index. If you’d like to gain exposure to the UK market, you can even invest in the FTSE 100. With such a wide variety of options, there is an investment for everyone.
An alternative brokerage to consider is Capital.com. Capital.com is a CFD broker based in the United Kingdom. They are regulated by CySec, which means they comply with all of the security policies necessary throughout Europe. They offer a vast selection of securities to choose from, including stocks, ETFs, commodities, forex, and more.
As Capital.com is a CFD broker, you actually trade a contract based on the underlying asset. For example, at Capital.com, you would invest in an S&P 500 CFD, which would give you exposure to movements in the actual S&P 500 index. This is one possible way to invest, as these CFDs will pay out the difference between the price you open the contract at and the price you close the position.
This broker allows you to deposit as little as £20 and offer a vast selection of deposit methods, such as credit card, debit card, wire transfer, Skrill, Giropay, and more. What’s more, Capital.com offers up to 20:1 margin trading for major indices.
Finally, Capital.com even offers a revolutionary, AI-powered ‘newsfeed’ to users of the platform. This newsfeed is automatically tailored based on your investment decisions, providing you with videos and articles that help you make more informed decisions. These educational materials are designed to help you refine your strategy when trading securities such as S&P 500 CFDs.
Sponsored ad. 78.91% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider.
Important Features of the S&P 500 UK
Once you have chosen a broker to invest in the S&P 500 with, it’s time to determine your chosen investment method. Found below are three ways to gain exposure to the S&P 500 index.
S&P 500 Index Trading
One of the most popular ways to invest in the S&P 500 is through an S&P 500 index fund. This is the most direct manner to gain exposure to the US market and can be done in various ways. The quickest and most effective way is through an S&P 500 cash index, such as the one offered by eToro. Quoted as ‘SPX500’ on eToro’s platform, this index allows a minimum of $200 investment. However, as the index is known to generate positive growth over the longer term, this could be a wise move; if you invested $1000 now, and the index grew 10% over the next year, you would have $100 profit which you could then withdraw or leave to compound even more.
A more speculative method to invest in the S&P 500 is through futures trading. This type of trading allows you to speculate on the price that the S&P 500 will be at a designated point in the future. These futures act as a legally binding contract between a buyer and a seller and are used by many investors to hedge against market fluctuations. S&P 500 futures are mainly utilised by large institutions, as they are traded on the Chicago Mercantile Exchange (CME) and are often relatively expensive to purchase.
A more accessible form of futures are the S&P 500 E-mini futures. These futures contracts are very liquid and can be traded by retail investors as they are 1/5 of the price of regular futures contracts. Again, much like standard S&P 500 futures, these E-mini futures allow investors to speculate on or hedge against market fluctuations.
Finally, if you are looking for the most active method to get involved in S&P 500 trading, you could even day trade the index. Although not the most efficient manner to invest in this index, if you are the type of person who likes to get in and out of the market fast and is happy with smaller returns, this could be something you consider. To trade the S&P 500, you would need to set strong entry/exit rules and aim to leave the market after price increases of around 1-2%.
S&P 500 Tracker Funds
One way to invest money in the S&P 500 is through tracker funds. Tracker funds (sometimes referred to as index funds) essentially aim to replicate a specific market index’s performance – in this case, the S&P 500. They provide a well-diversified investment that is inherently low-risk.
Tracker funds almost always offer a low expense ratio, which means they are a low-cost way to invest your capital.. Finally, tracker funds are endorsed by many successful investors – Warren Buffet famously swears by S&P 500 as a popular tracker fund.
S&P 500 ETFs & Stocks
If the previous two methods of gaining exposure to the S&P 500 aren’t for you, you could perhaps consider investing in an ETF or even a stock that follows a similar price path to the S&P 500. Firstly, exchange-traded funds (ETFs) are similar to tracker funds in that they attempt to replicate the performance of an index, sector, or asset. However, what is notable about ETFs is that they are actively traded on the stock market, meaning they can be bought or sold in the same way as shares are.
With eToro, you can invest in the S&P 500 ETF UK. One of the options is the SPDR S&P 500 ETF, which will give you exposure to the US equity market. What’s more, at eToro, you can invest in this ETF with zero commissions whatsoever.
If you’d like to gain more indirect exposure to the S&P 500, you could even invest in a stock correlated with the movements of the index. Although this is riskier than investing in a tracker fund or an ETF, investing in a stock with similar trends to the S&P 500 could even present you with more significant returns over the longer term.
Due to the nature of the index, large-cap U.S. stocks are more likely to follow similar price patterns to the S&P 500. Some stocks that have historically been observed to positively correlate to the S&P 500 index are Apple and Microsoft.
Research S&P 500 Investment
Before taking the plunge and investing in the S&P 500, you must do your due diligence. The section below will touch on some key aspects you need to consider before investing in the S&P 500 index.
Fundamentals of the S&P 500 Index
There’s a reason the S&P 500 is one of the most popular investment vehicles for both retail and professional investors. As it provides exposure to the US equity market and comprises 500 firms from various sectors, it is an incredibly efficient way to diversify your portfolio.
Over the past ten years, the index has displayed an average annual return of 13.6%. But keep in mind that past performance is not an indicator of future success. Within those ten years, though, individual years have deviated quite significantly from the average. In 2013, the index returned 32.4%; however, in 2018, it returned -4.4%. This makes it a better investment in terms of returns than a tax free ISA. What’s more, the S&P 500 even performed well across the pandemic, returning 15.76, which is more than some mutual funds.
How To Invest In S&P 500 UK – Conclusion
As a provider of passive returns, the S&P 500 index is hard to beat. With incredible diversification benefits and an average annualised return of 10%, this index is a favourite of some investors.
It is accessible, low-risk, and does not require you to actively trade or re-balance whatsoever. All you need to do is decide how much you want to invest, make the transaction, and let the index do its thing.