How to invest on the S&P 500, a complete guide

4 October 2023 - 13:12

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How to invest in the S&P 500 index? Between buying direct shares, CFDs, ETFs, or futures, here is a complete guide.

How to invest on the S&P 500, a complete guide

The S&P 500 index represents the 500 main companies listed on the US stock exchange. From tech giants like Apple, Microsoft , and Amazon to financial leaders like JP Morgan and BlackRock, these companies represent the backbone of the American economy. For this reason, the S&P 500 is considered the barometer of global markets.

In recent years, the S&P 500 has shone with solid and consistent performance, attracting investors looking for predictable returns. In this guide, we will examine how to invest in this iconic index, exploring its history, its growth trend, and the different opportunities for investors.

What is the S&P 500 Index

The S&P 500, short for Standard & Poor’s 500, was created in 1957 by rating firm Standard & Poor’s. Since then, it has become one of the most followed indicators in the world for evaluating stock market performance and is considered a reference indicator for institutional and individual investors, as well as being used as a basis for mutual funds and pension funds. Its long series of historical data makes it a valuable tool for analyzing long-term trends and market evolution.

S&P 500 Price Trend

To fully understand how to invest in the S&P 500 index, it is essential to analyze its trend over the years. Looking at a graph of the last 10 years, you can see some significant trends and the factors that have shaped its path.

Over the last 10 years, the S&P 500 has gone through several phases:

  • Financial Crisis (2008-2009): During the global financial crisis, the index fell sharply, reaching historic lows.
  • Recovery and growth (2009-2014): after the crisis, the index began a steady recovery, supported by economic stimulus policies and an improvement in economic conditions.
  • Sustained Growth (2015-2020): Over this period, the S&P 500 has continued to grow steadily, fueled by strong business fundamentals, low interest rates, and strong investor demand.
  • Covid-19 Pandemic (2020): In March 2020, the index underwent a sharp correction due to concerns related to the Covid-19 pandemic. However, it then rebounded quickly thanks to central bank intervention and optimism surrounding vaccine approvals.
  • Post-pandemic recovery (2021-present): Since then, the index has continued to rise, reaching new all-time highs in 2021, at around 4,800 points, supported by the economic recovery and strong support from government policies.

The performance of the S&P 500 is influenced by a number of factors, including:

  • Economic policy: the fiscal and monetary stimulus policies adopted by the government and the Federal Reserve can have a significant impact on the performance of the index.
  • Economic Conditions: The overall health of the US economy, including the unemployment rate, GDP growth, and inflation, can influence the performance of the index.
  • Global Events: Geopolitical events, international economic crises, and other global events can impact the US stock market.
  • Sector trends: the performance of various sectors within the index, such as technology, energy, and finance, can vary significantly and influence the overall performance.

How to invest in the S&P 500 index

Now that we have a deeper understanding of the S&P 500 Index and its performance, let’s explore different options for investors interested in participating in this market.

1) How to invest in the S&P 500 with stocks

A direct way to invest in the S&P 500 index is to buy the shares of the companies that make it up. Investors can do this through online brokers or brokerage firms. Here are the key steps:

  • Choose a reliable online broker that allows you to trade stocks listed in the United States;
  • Open a trading account with the chosen broker;
  • Research and select companies within the S&P 500 to include in your portfolio;
  • Enter the buy orders to buy the selected shares;
  • Closely monitor the market trend and stocks.

2) How to invest in the S&P 500 with CFDs

Contracts for Difference (CFDs) allow investors to speculate on the performance of the S&P 500 Index without having to actually purchase the underlying shares. Here’s how it works:

  • Choose an online broker that offers CFDs on the S&P 500 Index;
  • Open a CFD account with the broker;
  • Select the S&P 500 index as an asset and open long (buy) or short (sell) positions depending on market forecasts;
  • Monitor investment performance, managing positions based on market conditions.

Contracts for difference, known as CFDs, are derivative financial instruments that allow the investor to speculate on the rise or fall of a specific underlying asset. In this way, you do not actually own the financial asset in which you invest, but you are exposed and profit when the price of the underlying rises (in the case of a bullish bet) or when the price falls (in the case of a bearish bet). One of the reasons why more and more traders choose to use CFDs is the possibility of using financial leverage, through which you can invest a greater amount of money than the one actually available - a sort of "free loan" that the broker makes available and thanks to which the possible profit deriving from the trade increases, as does the money that you risk losing. For this reason, it is recommended to use leverage with the utmost attention and follow the good rules of money management.

3) How to invest in the S&P 500 with ETFs

Exchange-Traded Funds (ETFs) offer an efficient and cost-effective way to invest in the S&P 500. ETFs are funds that track the performance of the underlying index. By purchasing shares of an S&P 500 ETF, investors get instant diversification across all companies included in the index. Here’s how to invest in the S&P 500 with ETFs:

  • Select ETF that tracks the performance of the S&P 500. Some examples include SPDR S&P 500 ETF Trust (SPY) and iShares Core S&P 500 ETF (IVV);
  • Buy the ETF through an online broker, following the same steps to buy shares.

ETFs can be traded on exchanges during regular market hours and have lower management costs than traditional mutual funds.

4) How to invest in the S&P 500 with futures

S&P 500 Index futures allow investors to speculate on the future performance of the index. This tool is often used by institutional operators and professionals. Here’s how it works:

  • Choose a broker that offers the possibility of trading futures on the S&P 500 index;
  • Open a futures account, depositing the amount necessary to meet the margin requirements;
  • Select the S&P 500 futures contract you want to trade and open long or short positions based on market forecasts;
  • Make sure you have the required margin in your account to keep positions open;
  • Contract Expiry: Futures contracts have a specific expiry, so they must be managed or settled before that date.

The times of the S&P 500 Index

It is important to note that the S&P 500 Index follows US stock market times. Standard trading hours are Monday through Friday, 9:30 a.m. to 4:00 p.m. Eastern Time. However, there are also pre-market and after-hours sessions where limited trading can be done.

How to make money with the S&P 500 Index

There are several strategies for making money with the S&P 500 Index, depending on the investor’s goals and risk profile. Some common methods include:

  • Long-term positions: you purchase shares or ETFs linked to the index and hold them in the long term to benefit from market appreciation over the years;
  • Short-term trading: daily market fluctuations are exploited to make profits through active trading, for example using CFDs or futures;
  • Automatic investments: investments are automated through periodic accumulation programs (PAC) or robo-advisory investments;
  • Hedging and risk management: to protect your portfolio from possible losses you can use financial instruments, such as options or futures contracts.

Is investing in the S&P 500 index worthwhile?

The decision to invest in the S&P 500 Index depends on several individual factors, including financial goals, time horizon, and risk tolerance. Here are some considerations to keep in mind:

  • Diversification: Investing in the S&P 500 Index offers automatic diversification across a large number of companies, reducing the risk associated with investing in individual stocks.
  • Historical Return: Over the years, the S&P 500 has demonstrated a consistent upward trend, generating solid returns for long-term investors.
  • Volatility: The stock market can be volatile, with periods of correction and uncertainty.
  • Time Horizon: Investing in the S&P 500 Index is often best suited for those who have a long-term time horizon and can tolerate short-term fluctuations.

In conclusion, the S&P 500 index is a pillar of the investment world and offers several opportunities for investors. Whether you want to invest directly in stocks, use instruments like CFDs or futures, or opt for the simplicity of ETFs, it is important to understand the dynamics of this index and plan accordingly to achieve your financial goals.

Original article published on Italy 2023-10-01 08:10:00. Original title: Come investire sull’indice S&P 500?


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