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How to invest in an S&P 500 index fund


Ophelia

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Find your S&P 500 index fund

It’s actually easy to find an S&P 500 index fund, even if you’re just starting to invest.

Part of the beauty of index funds is that an index fund will have exactly the same stocks and weightings as another fund based on the same index. In that sense, it would be like choosing among five McDonald’s restaurants serving exactly the same food: which one would you go with? You’d probably select the restaurant with the lowest price, and it’s usually the same with index funds.
Here are two key criteria for selecting your fund:

  • Expense ratio: To determine whether a fund is inexpensive, you'll want to look at its expense ratio. That’s the cost that the fund manager will charge you over the course of the year to manage the fund.
  • Sales load: If you’re investing in mutual funds, you’ll also want to see if the fund manager charges you a sales load, which is a fancy name for a sales commission. You’ll want to avoid this kind of expense entirely, particularly when buying an index fund. ETFs don’t charge a sales load.

S&P 500 index funds have some of the lowest expense ratios on the market. Index investing is already less expensive than almost any other kind of investing, even if you don’t select the cheapest fund. Many S&P 500 index funds charge less than 0.10 percent annually. In other words, at that rate you’ll pay only $10 annually for every $10,000 you have invested in the fund.

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