How to invest in the S&P 500 UK

5 quick steps to investing in the S&P 500 index

Read more about each of these stages below.

Best brokers to buy S&P 500 stock

Browse my list of the top platforms to buy S&P 500 stocks and shares.

How do I invest in the S&P 500 in the UK?

1. Choose a broker or investment platform

Before you begin trading, you should seek a reputable broker to invest through. Brokers will vary in which assets and indexes you can access through their platform. So, it’s worth deciding based on what is listed with the available brokers.

Different platforms have varying fees and charges. These may include fees for withdrawals or inactivity, and there may be commission to pay on trades. Since the S&P 500 is an American-listed index, there may also be conversion fees from pounds to dollars for some investments.

Since the S&P 500 is a US-listed index, you’ll need to choose a broker with access to US investments. You’ll also need to fill out a W-8 BEN form with your broker, a US tax form that allows you to access US investments from the UK.

2. Open an account

The next step toward investing in the S&P 500 after choosing a broker is opening a trading account with them. You can open different types of accounts, each with varying features. Below are some of the most popular types of accounts:

• General Investment Account (GIA) – an investment account with no limits. There may be tax to pay on gains, depending on how much you generate while investing.
• Stocks and Shares ISA – a tax-efficient way to invest in a range of assets, with returns free from Income Tax, Capital Gains Tax (CGT), and Dividend Tax. You can invest up to the ISA allowance each tax year – £20,000 in 2022/23.
• Self-invested personal pension (SIPP) – a type of pension in which you can choose your own investments. You’ll receive tax relief on contributions at your marginal rate of Income Tax, up to the Annual Allowance (£40,000 in 2022/23). Bear in mind that you won’t be able to access your money until at least age 55, rising to 57 in 2028.

Opening a share trading account is fairly simple and can typically be done online in a few minutes. Simply choose the account that suits you, enter any personal details, and that’s it.

3. Deposit your funds

After opening an account, you then need to deposit funds to your account. Most platforms will allow you to do this online using a credit or debit card, and some may also accept Google Pay and Apple Pay.

Remember: you don’t have to invest all of your initial deposit at once, and you should never deposit funds that you need to live your daily life.

4. Choose how to invest

Investors have a choice of different methods when investing in the S&P 500. You could buy specific stocks and shares from the list of the 500 companies. Or alternatively, you could opt for one of the different types of funds that are available.

Exchange-traded funds (ETFs), mutual funds, and S&P 500 index funds all have different advantages and disadvantages that will suit different investors.

Futures contracts and derivative trading options such as spread betting are also ways to trade, but typically also carry greater risk.

Of course, nothing stops you from investing in a range of methods to create a more diversified portfolio.

I’ll discuss each of these options in greater detail later on in my guide.

5. Make your investment

Once you’ve completed these easy steps, you’re ready to invest in the S&P 500. Investments carry risk and your portfolio could increase or decrease in value. For this reason, your positions should be closely monitored.

What is the S&P 500 index?

The S&P 500 is a stock market index listing the 500 largest companies in the United States. Because of this, it is seen as a good indicator of the general state of the US economy.

The S&P 500 index is a popular choice for equity investing and those seeking long-term positions.

Where is the S&P 500 index listed?

Since they’re American companies, the 500 companies that make up the S&P 500 are all listed across multiple US exchanges. This includes the New York Stock Exchange (NYSE), the Nasdaq, and the Chicago Board Options Exchange (Cboe).

The UK equivalent is the FTSE 100, listing the 100 biggest companies in the UK. It can also be a useful indicator of UK market conditions, as the S&P 500 is for the US market.

Ways of investing in the S&P 500 index

You can’t invest directly in the S&P 500 itself since it is a representation of the performance of the largest companies in the US. Even so, there are various ways to invest in the S&P 500’s companies that suit different types of investors and involve different levels of risk.

Ways to invest in the S&P 500 index include:

• Buying individual stocks and shares
• Investing through a fund
• Trading derivatives
• Trading futures contracts.

Find out more about these options below.

Buying individual stocks and shares

Firstly, you can buy individual stocks and shares in companies on the S&P 500 from the UK. You don’t have to be in the particular country where the stocks are listed to invest in them. Investing in the S&P 500 and other US stocks from the UK is a fairly common practice.

The S&P 500 includes some of the biggest companies in the world, including:

• Disney
• Apple
• Microsoft
• Amazon
• Coca-Cola.

You might do this in order to choose specific companies you want to invest in. Additionally, buying individual stocks and shares could be good for long-term holding. You may even receive dividends from the company, offering a passive income on your investment.

However, this could potentially be expensive, as some of these stocks may be worth hundreds of dollars. Depending on your broker, you may also have to pay commission for each trade.

Furthermore, this adds the pressure of having to choose the investments yourself. In combination, this may mean this strategy isn’t suitable for all investors.

Invest through a fund

Rather than buying individual stocks and shares, investing in the S&P 500 index through a fund could be a low-cost way to invest in the US market.

A fund is a collection of investments that you can invest in all at once. You buy “units” in a fund, which is somewhat like buying shares in the fund itself. These units then rise and fall in value depending on how the constituent companies in the fund perform.

Investing through a fund can be preferable as it tends to be a lower-cost option than buying individual stocks and shares. Using a fund to invest could also reduce the pressure of choosing and managing the stocks yourself.

There are various different types of funds you could consider. I have listed and explained a few of these below.

Index fund

An index fund (sometimes also called a “tracker fund”) tracks a particular market index and invests in all the listed companies. This allows investors to invest in all constituents of the index at once. So, by buying units in an S&P 500 index fund, you’ll be investing in all the companies listed on the index simultaneously.

An S&P 500 index fund is a way of investing in a diversified group of stocks, typically aiming for steady, long-term growth. These funds are known for offering a low-risk option to invest in the stock market.

This comes from the sentiment that patiently investing in the market’s biggest companies could yield better outcomes than trying to predict the movement of individual stocks.

An index fund is usually one of the cheapest ways to invest in the S&P 500. They charge low fees, requiring little management as they are typically automated. This reduces the fees to pay.

One disadvantage to using an index fund is their lack of flexibility, as they only allow trading at the daily close price.

See also: My guide to the best index funds

Managed mutual fund

A managed mutual fund can provide a passive way to invest in the S&P 500 through professional investors.

Much like an index fund, you can buy units in mutual funds containing other investments, giving you exposure to multiple assets all at once.

But, unlike index funds, the fund is presided over by a professional fund manager who will monitor the investments contained within it. Using technical analysis, they also target specific stocks that are expected to outperform the market.

To invest in the S&P 500 index through a managed mutual fund, you’ll need to find one with a manager who has selected investments listed on the S&P 500.

Bear in mind that managed mutual funds could incur a higher cost for your investments since the manager charges fees to oversee your portfolio.

Exchange-traded funds (ETFs)

ETFs are a way to invest in a wide range of companies through a single fund, but with one major difference: they are traded on an exchange.

These funds allow investors to trade fund units throughout the day, unlike index funds and mutual funds where only the close price can be traded. This means smaller movements can be taken advantage of by investors using an ETF, since you have more flexibility to buy or sell units during the day.

ETFs are a common method for investing in the S&P 500 – in fact, the very first ETF was for the S&P 500 index. Simply find an ETF that offers access to the S&P 500 index and buy units in it. ETFs might trade on the London Stock Exchange in pounds, so they could be easier to access for UK investors, too.

As well as this, you could avoid the higher ongoing fees charged with an actively-managed fund.

Choosing between an ETF or index fund can be tricky as they are very similar. You can always invest in both ETFs and index funds but remember: if they are tracking the same index, your money will essentially be invested into the same investments twice.

Trading derivatives

Alternatively, rather than choosing traditional investments, you could consider trading derivatives such as contracts for difference (CFDs) or spread bets. Both of these methods allow you to capitalise on smaller price movements, including both rises and falls in value.

Spread betting is a method of derivative trading where you do not own the actual asset you make bets on. Instead, you speculate on the future price movements of the asset, betting whether they will rise or fall in value.

Meanwhile, trading CFDs involve a contractual agreement between a buyer and a seller to trade the difference in the price of an asset at a specific date.

With both spread betting and trading CFDs, you can make use of “leverage”, allowing you to trade larger amounts of money with a smaller sum of upfront capital. This potentially allows you to magnify your gains – although, of course, this also means losses will be magnified, too.

It should be noted that CFDs involve a high level of risk, with around 50-70% of retail investor accounts losing money when doing so. Make sure you understand how derivative trading works before you begin, and take independent advice if you’re unsure.

Futures contracts

Futures are a slightly more complex way of trading S&P 500 shares and often involve high levels of risk. They are a type of derivative contract that operate in a similar way to CFDs and use a contractual agreement to perform a trade at a future price point or date.

Make sure you fully understand how futures contracts work before you invest. Speak to a financial advisor for guidance if you’re not sure whether futures contracts are suitable for you.

What is the best index fund in the UK?

The companies contained in S&P 500 index funds don’t differ across brokers, as the index itself determines what will be included. So, it’s often best to consider the features of each fund and whether these suit how you plan to invest. This could be elements such as fees, deposit and withdrawal limits, or reliability.

List of available index funds

Below are a few available index funds (many of which also happen to be ETFs) that you could use to invest in the S&P 500:

• Invesco S&P 500 UCITS ETF
• iShares Core S&P 500 UCITS ETF
• Vanguard S&P 500 UCITS ETF
• SDPR S&P 500 UCITS ETF
• HSBC S&P 500 UCITS ETF USD
• Xtrackers S&P 500 Swap UCITS ETF
• Lyxor S&P 500 UCITS ETF
• Amundi ETF S&P 500 UCITS ETF USD.

Do S&P 500 companies pay dividends?

While the S&P 500 index doesn’t pay dividends itself, a lot of the companies within the index do. This could be something that may influence your decision on which companies you choose to invest in.

Dividend yields can be calculated by finding the weighted average of a company’s most recent full-year dividends and dividing it by the share price. Nasdaq measured the average dividend yield from S&P 500 companies to be 1.61 from July-September 2022.

Should I invest in the S&P 500 index?

The decision of whether to invest in the S&P 500 or not will come down to your personal investing goals and your tolerance for risk. There are pros and cons in choosing the biggest 500 companies in the US to invest in. I’ve outlined a few of the considerations you may want to take into account before you invest.

Consider consulting a financial advisor for investment advice before making decisions that could put your capital at risk if you’re unsure whether S&P 500 investments are suitable for you.

Pros

• Historically, the S&P 500 index has yielded consistent growth for investors. According to Business Insider, the index’s average annual return is around 10.7% since its inception in 1957. This leads some people to approach the index with intentions of long-term investment.
• The wide range of business sectors and large market cap stocks that are represented in the S&P 500 make it a relatively diverse asset to invest in.
• The availability of funds tracking the index could also be a cheaper option than buying individual stocks in these companies, as you can access expensive stocks and shares in a single investment without fees or commission building up over multiple transactions.

Cons

• On the other hand, it could be argued that the S&P 500 isn’t as diversified as it seems. For example, S&P 500 companies consistently have a large market capitalisation (or market capitalization, as it’s known in America). This means that your investment is only in companies with a large market cap, rather than businesses of varied sizes.
• Additionally, the recent technology boom has led to many tech businesses gaining a lot of value in a short space of time. Because of this, some people could argue that the S&P 500 is overweighted by tech stocks.
• Furthermore, any disturbance to US stock market regulations could negatively affect every business listed there, regardless of size or reputation. Meanwhile, investing across geographical regions can often be a more sensible option for creating a truly diversified portfolio.

What companies are included in the S&P 500?

Not any company is included in the S&P 500. There are specific criteria that determine which companies are eligible for S&P 500 status. The list is comprised of the largest companies in the US and an index committee uses different metrics to gauge their size.

Inclusion in the S&P 500 has a rigid set of requirements, including that companies on the index must:

• Be listed in the US
• Have a market capitalisation of at least $11.8 billion
• Be highly liquid
• Have a public float of at least 10% of its outstanding shares
• Have positive earnings from its most recent quarterly earnings and previous four successive quarterly earnings.

As of 18 August 2022, the top 10 companies by capitalisation on the S&P 500 are:

• Apple
• Microsoft
• Amazon
• Tesla
• Alphabet (parent company of Google)
• Berkshire Hathaway
• UnitedHealth Group
• NVIDIA
• Johnson & Johnson
• Meta Platforms (formerly Facebook).

Beyond the top 10, more examples of the large-cap companies listed on the S&P 500 are Nike, McDonald’s, Coca-Cola, PepsiCo, and the Walt Disney Company.

Please note

Investments carry risk. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future results.

CFDs are complex instruments and more than half of retail investor accounts lose money when trading CFDs. Please make sure that you know these risks before you start trading and that you’re aware there’s a high chance of losing money rapidly on your investment.