I'm Donny. I'm a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.
If you want to open a new investment account or beef up your current portfolio, it might be a good idea to invest in the S&P 500. But, how can you invest in the S&P 500?
Here’s how to invest in the S&P 500:
- Decide how much you want to invest.
- Open an account with a brokerage firm.
- Choose the S&P 500 index fund that best suits your needs.
- Enter your trade.
Read on for further information on each step, and the guidelines to follow to succeed in trading.
1. Decide How Much You Want To Invest
Start by determining how much money you have that you’d like to put into your investment account.
For most beginners, it’s a good idea not to invest too much money right away so that if there are any mistakes, you won’t lose too much money. A sound starting point for most is one month’s salary.
2. Open an Account With a Brokerage Firm
The next thing you’ll need to do is open an investment account with a brokerage firm. Many different companies offer accounts, but one of the most popular ones for beginners is Robinhood.
The company doesn’t have minimum balance requirements, and they don’t charge commissions on stock, ETF, and options trades. They also offer very easy-to-use tools to help you get started in investing and understanding the market.
3. Choose the S&P 500 Index Fund That Best Suits Your Needs
After opening your investment account, the next step is to identify the S&P 500 index fund that would help you achieve your investment goals. In general, it would help to consider the following when picking your preferred fund:
- Expense ratio: This refers to the cost the fund manager charges. As a rule of thumb, you should pick one with a low ratio. This reduces transaction costs, increasing your profits.
- Sales Commission: Ideally, you should pick a fund that charges zero commission fees.
Many different index funds are offered, but the Vanguard Total Stock Market Index is my favorite. This fund includes every stock in the entire US market (up to 3,980 different stocks).
This is a highly diversified investment with great risk-to-reward ratios (meaning you get a lot of safety for not very much potential loss).
To get more insight into how to pick index funds, check out this YouTube video:
4. Enter Your Trade
After you’ve decided on what kind of investment account to open, which stocks you’d like to purchase, and how much money you want to invest in each stock, it’s time to enter your trade.
You can do this online or over the phone.
Now sit back, relax, and let your investments grow. The power of compounding interest is one of the most powerful investment concepts. Compounded over decades, minimal investments can end up being worth a lot more than what was initially put into them!
Beginner Tips for Investing in the S&P 500
Now that you’ve seen how to invest in the S&P 500, here are some beginner tips that can help you succeed.
Keep Your Investments Simple
Don’t overcomplicate things and diversify across many different stocks or funds. This will make it easier for you to keep track of what’s going on with all the different companies you have invested in.
Besides, you don’t need to have a perfect portfolio every time you check it. Even professionals have blind spots, and unforeseen events happen all the time.
Remember That Investing Is Not a Short-Term Solution
It’s pretty easy to get caught up in the moment and think that investing will solve your money problems quickly, but don’t fall into this trap!
Investing takes years, even decades before you see any significant return on investment (ROI). Be patient with your investments, and they’ll pay off for you later on.
Track Where Your Money Goes
Track where your money goes every month/week/year so that you can understand how much of your income you’re spending (and saving) vs. how much you’re investing.
This will help you better understand where your money is going and how much you can afford to invest without endangering your financial security.
Get Comfortable with Taking Risks
There’s no such thing as a 100% safe investment.
Investing in the stock market, and especially index funds (which track the entire economy), means exposing yourself to small amounts of risk so that you can experience higher returns over time.
Remember, if something seems too good to be true, it probably is!
Start Small, but Start Now
Investing is much easier when done consistently over time through automatic contributions every month or week. Don’t wait because making money doesn’t happen overnight!
Even if you only put in $20/week, you would have invested $1,040 into your portfolio at the end of one year.
Don’t Invest With Debt
Debt tends to compound on itself, so it’s best not to take on additional debt when you’re investing.
This saves you the stress and headache of worrying about how to pay off all your debt while you’re stuffing away cash in your investment account.
Only Invest What You Can Afford To Lose
It’s crucial that you only invest what you can afford to lose.
This doesn’t mean that you shouldn’t invest at all! It just means that you shouldn’t risk your entire life savings because something goes wrong with one of your investments.
For in-depth guidelines on how to grow wealth investing in the S&P 500, I recommend reading Mark Zuckerman Stock Market Investing Bible (available on Amazon.com).
It provides valuable information on investing in indexes and stocks, besides recommending the actions to take during a downturn.
Investing in the S&P 500 is simple to do through an index fund. However, it requires time and patience before seeing any significant ROI.
The best way to get started with investing is by keeping your investments simple, starting small, not using debt when you invest, only investing what you can afford to lose, and tracking where your money goes.
And remember, investing isn’t a short-term solution to any money problems. It’s something that you should only do if you’re patient and willing to take on the risks.
Robinhood is a free-trading app that's ideal for investors who want to trade stocks, options, exchange-traded funds and cryptocurrency without paying commissions or fees. The service is innovative, cutting out nearly all costs that are typically associated with investing.
I'm Donny. I'm a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.More Posts