How to invest in the S&P 500 from Australia.

Here are the quickest and easiest ways to invest in one of the world's most popular stock indices.

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Standard & Poor's 500, best known as the S&P 500, is a stock market index that tracks the performance of the 500 largest US companies listed on the stock exchange. It is the largest and most popular stock index in the world.

It's a key indicator because it's used as a benchmark for the performance of the broader US stock market.

So if you see the S&P 500 index rise or drop significantly on any given day, you'll know it's probably because of a major event that's impacting thousands of US corporations. It might even affect the economy.

In this guide, you'll learn about the S&P 500 basics, plus steps for how to invest from Australia.

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How to invest in the S&P 500 from Australia.

There are a number of ways you can invest in the S&P 500 from Australia.

As it is a collection of 500 companies, you can either buy stocks in these companies or you can invest in an S&P 500 index fund.

Another approach is to trade the S&P 500 via contracts for difference (CFDs), a derivatives product that allows you to speculate on index price movements.

This is very different to index fund investing, as it's much riskier, and you're using leverage to amplify profits and losses.

When you hear of someone "trading the S&P 500" in Australia, they're most likely referring to CFD trading. "Investing in the S&P 500 index", on the other hand, is associated more with index funds.

It's important to understand that all of these approaches vary significantly in terms of risk.

As a general rule, investing in a single company is riskier than investing in an index fund, while index CFD trading is much riskier still and should only be attempted by experienced traders.

Steps to trading in the US from Australia.

Investors have 2 options when investing with the S&P 500: buying individual shares or buying ETFs (we will get into the latter option later).

You could choose to buy shares in select companies or all 500 of them if you wanted to.

Opening up a trading account can be done in as little as 6 steps:

Choose a broker Select your membership level Provide ID Link bank account Submit application Start trading.

Which stocks are in the S&P 500?

The S&P 500 is made up of 500 of the largest US companies by market capitalisation, which means it contains some of the most recognisable and popular stocks in the world. These include the following:

Compare S&P 500 trading platforms.

We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.

Important: Share trading can be financially risky and the value of your investment can go down as well as up. Standard brokerage is the cost to purchase $1,000 or less of equities without any qualifications or special eligibility. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.

Trading CFDs and forex on leverage is high-risk and you could lose more than your initial investment. It may not be suitable for every investor. Refer to the provider’s PDS and binary option strategy consider the risks before trading.

How to invest in an S&P 500 ETF.

Find an S&P 500 index fund. Some index funds track the performance of all 500 S&P stocks, whereas others only track a certain number of stocks or are weighted more towards specific stocks. Some are actively managed while others do little more than track the index. Do your research before deciding which is best for you. Open a share trading account. In order to invest in an S&P 500 ETF, you'll need to open a trading account with a broker or platform. Deposit funds. You'll need to deposit funds into your account to begin trading. Buy the index fund. Once your money has been deposited, you can then buy units in the S&P 500 index fund, the same as you would buy stocks. You'll generally pay a small annual fee (called the MER fee) to the ETF fund manager taken out of your returns.

List of S&P 500 index funds in Australia.

As mentioned earlier, index funds can be either listed on a stock exchange as exchange traded funds (ETFs) or as unlisted funds. There are very few differences between unlisted funds and ETFs, and many fund managers such as Vanguard and BlackRock offer investors both options.

If you're new to investing, ETFs can be easier to access because you can invest in them through any regular share trading platform. ETFs also have a lower minimal investment requirement of a few hundred dollars rather than a few thousand dollars for unlisted funds.

To help get you started, here's a list of S&P 500 ETFs in Australia to date:

iShares S&P 500 AUD Hedged ETF: (IHVV) iShares S&P 500 ETF:L (IVV) BetaShares FTSE RAFI US 1000 ETF SPDR S&P 500 ETF Trust: (QUS) SPDR S&P 500 ETF Trust: (SPY) BetaShares S&P 500 Yield Maximiser Fund (Managed Fund): (UMAX) ETFS S&P 500 High Yield Low Volatility ETF: (ZYUS)

Should you choose an index fund or buy individual shares?

This really depends on your overall goals, the time you want to commit and the money you have to invest.

Investors who are purchasing individual shares are trying to "beat the market".

According to global investment bank Goldman Sachs, 10-year stock market returns have averaged 9.2% over the past 140 years. Recently, the S&P 500 has done slightly better than the historic 10-year average, with an annual average return of 13.6%.

As such, an investor in individual shares should be aiming to find a basket of companies that have a greater return.

Investing in individual stocks is time consuming and it can be riskier, depending on what the investor purchases. Investors will have to understand the ins and outs of every company they purchase.

However, if an investor simply wants a passive, lower involvement option, they could take an ETF approach.

An ETF approach also allows an investor forex to lower their overall costs.

Some of the stocks in the S&P 500 are also valued in the hundreds of dollars, so you'd need to invest thousands of dollars in order to get exposure to all companies in the index.

If you're looking to diversify your portfolio by investing in the companies in the S&P 500, it's likely going to be a lot cheaper and more efficient to buy an S&P 500 ETF or index fund.

However, the downside of an ETF is investors get market returns, meaning they can't outperform the market. It also means the investor could own shares in some poor performing companies if they are part of the index the ETF tracks.

Why should I invest in the S&P 500?

The S&P 500 features some of the largest and most successful companies in the world and has historically given investors a decent return on their investment.

If you only invest in stocks available on the Australian Securities Exchange (ASX), you'll be limited in the number of stocks you can buy. Investing in an S&P 500 index fund or opening a trading account that gives you access to the US stock market will let you diversify your portfolio and open up the potential gains offered by US stocks.

While past performance does not guarantee future success, history suggests investors could increase their returns by investing in the S&P 500 over the ASX 200.

Taking the last 10-year average of the 2 markets, the S&P 500 has returned 13.9%, compared with the ASX 200 which has returned 9.3%.

Kylie Purcell.

Kylie Purcell is the investments editor at Finder, specialising in investment products from online brokers to robo-advisors and ETFs. She has a background in business and finance content with her work featured on sites including Yahoo Finance, Sky Business, SBS, CTGN and the Adviser Magazine. Kylie has a Masters in International Journalism and a Graduate Diploma in Economics. She is currently working towards ASIC RG146 compliance certificates for Financial Advice and Securities and Managed Investments. When she's not writing about the markets you can find her demoing the latest trading app.

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