How to Invest in the S&P 500 UK

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

1. 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.
2. 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.
3. 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.
4. 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.

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.

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.

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.

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