How to invest in the S&P 500 Index Fund in the UK | Moneyfarm (2024)

The Standard and Poor’s 500 (S&P 500) is a stock market index comprising the 500 largest companies in the US. Discover how to invest in this index from the UK and its potential worth.

Most UK investors look to the FTSE 100 index for opportunities when they first start investing. But the FTSE is only one part of a much larger picture. There are other indexes around, and if you feel you want to take a step up in the smart wealth management stakes, you might want to know how to invest in the S&P 500. If you do, reading this article will help.

The initials “S&P” stand for Standard and Poor. The “500” refers to the size of the index, which comprises the 500 largest companies listed on the US stock market. Given its size and diversity, familiarising yourself with how to invest in S and P 500 could be a smart move.

What is an index?

In this “How to invest in the S&P 500” article we’ve already bandied the word “index” around a few times, but what is an index? Most readers will be familiar with the term as a page in a book or file that guides you to a specific chapter or section. However, it has a different meaning when used in relation to the FTSE 100 or the S&P 500 index funds.

When used from an investment perspective, an index like the FTSE 100 or S&P 500 indicates how investors feel an economy is progressing. This is because it collects and displays various data from a number of businesses across multiple industries.

Comparison of S&P 500 ETFs available in the UK

When considering how to invest in the S&P 500 in the UK, checking out the ETFs the index lists is part of the process. Some perform better than others. According to the Money.USNews.com website, the Top 10 dividend stocks for 2024 are:

The yields shown above are as at the time of writing. Click on the “Tickers” for the latest updates.

How to choose the right S&P 500 index fund

Here are a few tips on how to invest in the S&P 500 and choose the right index fund.

• Look for funds that have low expense ratios.
• Choose from funds that have been around for several years.
• Select funds with a healthy AUM (Assets Under Management) mix.

Basically, the longer an index fund has existed, the more information you’ll be able to glean about its performance history.

Is it possible to invest in the S&P 500 from the UK?

Knowing how to invest in the S&P 500 index fund from the UK entails establishing what funds to buy, discovering which platforms to use and finding out how to get started. But before we go any further, first things first.

You can’t invest in the index itself, but you can invest in the stocks and shares that companies listed on the S&P 500 offer. Alternatively, you can purchase an ETF or Index Fund designed to track the S&P’s overall performance. So, when it comes to how to invest in the S&P 500 and building investment portfolios, you have plenty of choices.

Setting up your investment goals

Before you start investing, whether you’re interested in the FTSE 100, S&P 500, or whatever, it’s important you first establish your investor portfolio and financial goals.

Some ETF or index fund options aim to track a specific number of stocks or are weighted by certain stocks. You need to select which of these options you prefer.

Choosing a platform

The only way you used to be able to invest in S&P 500 funds from the UK was to appoint a broker. Now, thanks to the World Wide Web, you can use online platforms. Therefore, when choosing a platform (or a broker), you should remember that if it’s specific Exchange Traded Funds (ETFs) you’re interested in, you can only access them via certain platforms. So, the next step in learning how to invest in the S&P 500 is choosing a suitable platform.

Costs and fees associated with investing in S&P 500 funds

The following list shows a small random selection of platforms UK investors can use to invest in S&P 500 shares or mutual fund accounts, and the costs and fees associated with them.

• Interactive Investor – The minimum for your first deposit is £0. The rate per trade is £3.99, the same for frequent trades, and their platform fee is £4.99 per month.
• Invest Engine: The minimum for your first deposit is £100. There are no trading fees. Their platform fee varies from 0% to 0.25%.
• IG Share Dealing: The minimum deposit for your first deposit is £250. The rate per trade is £8, and for frequent trades, it is £ 3. Their platform fee is £0.
• Saxo Markets: First deposit minimum is £500. Their trade fee is £8, and this is the same for single or multiple trades. The platform fee is 0.12% per month.
• J Bell: First deposit minimum is £1. Single trades are £9.95 and “frequents” are £4.95. The platform fee is 0.25%
• etoro: Minimum first deposit is £10. There are no trading or platform fees.

S&P 500 index funds you can buy here in the UK

One of the first questions that investors have when considering how to invest in the S&P 500 is how many funds are there from which to choose. In terms of funds listed on the London Stock Exchange, there are over 100. But if you open an account with a broker or platform that grants you direct access to the US stock market, there are even more. Some of the most popular funds at the time of writing include:

• Fidelity 500 Index Fund – FXAIX
• Schwab S&P 500 Index Fund – SWPPX
• Vanguard 500 Index Fund Admiral Shares – VFIAX
• Vanguard S&P 500 UCITS ETF USD
• iShares Core S&P 500 UCITS ETF USD (Acc)
• Lyxor S&P 500 VIX Futures Enhanced Roll UCITS ETF C-E
• Lyxor S&P 500 Daily (-2x) Inverse UCITS ETF-Acc

Key factors concerning the best S&P 500 ETF UK funds

• There is a wide range of choices regarding ETFs designed to track the S&P 500 Index. When investing in the index via these ETFs, you can access several options that offer various risk tolerances.
• The only fee you will usually be charged when trading ETFs is the expense ratio. This ratio, usually charged as a percentage, reflects the cost of any administration, marketing, and portfolio management. In other words, it is the provider’s operating costs, and you need to take them into account because they affect your bottom line.

Long-term performance of the S&P 500

Learning how to invest in the S&P 500 in the UK could stand you in good stead. Its performance since it was expanded to its current size in 1957 has been exemplary. Here are the average returns across various durations:

• Across 50 years – 7.389%
• Across 30 years – 7.781%
• Across 20 years – 7.411%
• Across 10 years – 9.617%
• Across 5 years – 10.081%

In total, it averages 8.456%. This is quite impressive, especially when you consider that the figures are adjusted for inflation.

2023 was a good year for the stock market. The S&P 500 surged 24% to recover nearly all of the losses inflicted by the brutal bear market that was prevalent in 2022. On the last trading day, the index settled within 1% of its all-time high. In 2024, the S&P 500 rose more than 4% in the second quarter after jumping 10.2% in the first quarter. So far in June (at the time of writing), it’s risen 3.8%.

But as we’ve already stated, although investments generally rise, they do fall, too.

• August 1956 to October 1957. Lasted 14 months, losing 22%
• December 1961 to June 1962. Lasted 6 months, losing 28%
• February 1966 to October 1966. Lasted 8 months, losing 22%
• December 1968 to May 1970. Lasted 17 months, losing 36%
• January 1973 to October 1974. Lasted 21 months, losing 48%
• November 1980 to August 1982. Lasted 21 months, losing 27%
• August 1987 to December 1987. Lasted 4 months, losing 34%
• July 1990 to October 1990. Lasted 3 months, losing 20%
• March 2000 to October 2002. Lasted 31 months, losing 49%

Thankfully. Markets always eventually recover, but as you can see, it can take months, even years. That’s why it’s recommended to invest long-term so you’re prepared to ride out these bear markets.

Reasons for Investing in the S&P 500 Index

The decision of whether or not to buy shares and how to invest in the S&P 500 available funds will be influenced by your attitude towards risk. The value of your investments can fall as well as rise. But as any good financial advisor will tell you, the ways of minimising risk are investing over the long term and constructing a diversified portfolio. Opening a general investment account might be your best bet.

The main reason that people choose S&P 500 index funds to track the general market is that they are a good bet for investors looking for steady growth in the long term without taking undue risks. The closing position in 2023 shows how well markets recover. Also, the strong performance in the first two quarters of 2024 shows promising growth.

Another option when considering how to invest in an S&P 500 index fund is to think about trading S&P 500 futures. Each contract is an immediate, indirect investment in the index’s performance, and investors can opt for long or short positions according to their future results expectations.

Benefits of investing in the S&P 500

Financial information usually drives investors to buy stocks and shares rather than put their money into cash savings accounts. So, for example, when you know how to buy an S&P 500 Index fund, UK options or stocks and shares in other indexes like the FTSE 100, the returns are likely to be considerably higher than putting your money into cash savings accounts. It’s an important consideration, especially here in the UK, considering what has happened with inflation over the past couple of years, when it reached a 41-year high of 11.1%.

The interest offered on cash savings didn’t rise nearly as much, resulting in people’s cash savings losing significant value in real money terms.

Some other pros and cons to take into account when considering how to invest in the S&P 500, include:

• Pro – Considered an essential benchmark for the US stock market.
• Pro – Captures the pulse of the US economy, representing over 500 of the largest US companies.
• Con – Omits the majority of SMEs that comprise the majority of the US economy.
• Con – Disproportionate weighing on the side of the larger companies.

Risk factors associated with S&P 500 investments

At first glance, the S&P 500 appears to be a nice, well-diversified index. It actually holds 503 stocks in 11 different sectors. But more recently, its collection of companies has become somewhat focused on expensive technology companies.

Whereas this sector of the S&P 500 only accounted for 26% of listings, it has now grown to 40%. This sort of concentration can be problematic as it reduces the index’s overall diversification factor. Many financial professionals would view a 40% centration of assets to be dangerous. It means you need to choose your assets with care to get the sort of diversity that is recommended.

There is a risk of elevated valuation with the S&P 500 index, The price/earnings ratio for the top 5 companies is estimated at 31x. It’s a lot higher than the index’s 17x median.

Is it safe to invest right now?

By making long-term investments and building a diversified inflation-protected portfolio, you minimise risk. But as Warren Buffet stated at a Berkshire Hathaway annual shareholders meeting in 2021, “I do not think the average person can pick stocks.” Instead, he recommended investing in the S&P 500 index fund.

You may prefer to take more of a passive role, as many people do. No problem. You can appoint a portfolio manager to manage your investments and realign them when necessary to take advantage of current trends.

Of course, when looking at how to invest money, you need to consider the best way, and you may want to find out more about how to invest in the S&P 500 from the UK. If this is the case, you should chat with a professional, FCA–approved personal financial advisor. But, before you do, there are several things you should check out, including a company’s management fees.

Many Investors are now favouring US-centric investments after Russia invaded Ukraine and the Israeli-Palestinian conflict. If you share this opinion, the S&P 500 could be the right route.

FAQ

What is the S&P 500?

The S&P 500 (Standard and Poor’s 500) is an index that tracks the performance of the 500 largest publicly traded companies listed on the United States stock exchange market.

What are the advantages of investing in S&P 500 index funds in the UK?

You gain exposure to a wide variety of top-performing companies and industries. The long-term returns are both good and consistent. Index funds eliminate having to analyse and individually pick stocks, which can take hours each time. These S&P 500 index funds can also prove very liquid.

Can I invest in the S&P 500 from the UK?

Yes, you can. But you can’t invest directly in the index. However, you can buy stocks and shares in the companies listed on the S&P 500. Another way to invest in an index is to buy index mutual funds or index ETFs that track the performance of the S&P 500.

*Capital at risk. Tax treatment depends on your individual circ*mstances and may be subject to change in the future.