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Best Way to Invest in Stock Market?

Updated: Apr 2, 2022

Invest in S&P 500 Exchanged-Traded Fund (ETF)

S&P 500 Index measures the stock performance of the largest 500 companies listed on stock exchanges in the United States.

Companies such as Amazon, Apple, McDonald's, Microsoft, Google, Coca-Cola and Netflix are included in this list. You see that if you invest in S&P 500, you pretty much have invested in the top companies in the world. This is why S&P 500 is commonly referred to as 'the market'.

This list of the largest 500 companies is continuously being reviewed by Standard & Poor (S&P) Global Inc. Once a quarter, company stocks are added or deleted in the list as rules change, companies grow (or shrink), and merge. Whatever the methodology is, the most important thing to remember is that the list filters the biggest and best companies at a point in time. Because of this, you can say that the list is being managed an d you can take advantage of this.

As of today, S&P 500 is worth US$ 3,009.05 per share! Get 100 shares of S&P 500 and that will be over $300K. We will assume that this is something out of reach, even how good S&P 500 is as investment.

Luckily, there's a solution on this -- enter S&P 500 Exchange-Traded Fund or ETF.

S&P 500 ETF is use to mirror and closely track the S&P 500 Index's performance but with a lower price. This means that professionals and small business owners have a chance to enjoy the benefit of investing to S&P 500 Index while not forking out huge sum of money.

Note that while there are other ETFs available out there for you to invest on, they don't have the upper hand of leveraging into the expertise of those who scrutinises the S&P 500. Remember, S&P 500 Index is the benchmark in stock market investing.

How can you make money with S&P 500 ETF?

Similar with owning stocks in a particular company, investing in S&P 500 ETF provides returns in two-ways:

1. Dividends

Dividends is the amount of money a company pays shareholders for owning a share of its stock. Mature companies are the most likely to pay dividends, which is the case for S&P 500.

The dividend yield for the S&P 500 is calculated by finding the weighted average of each listed company's most recently reported full-year dividend, then dividing by the current share price. Yields are published and calculated daily by Standard & Poors and other financial media.

2. Capital gains distribution

This is quite rare to happen as S&P 500 ETF only tracks the performance of S&P 500 Index. There's no active buying & selling of stocks. This only happens when rebalancing is needed due to substantial changes in the list of top 500 companies.

Note that you can make money when you decide eventually to sell your S&P 500 ETF investment in the future. This happens when the selling price is higher than how much you bought it for.

Looking at historical trend shown above, S&P 500 Index share price has steadily increased. This means that the S&P 500 ETF has the same performance as it only mirrors the S&P 500 Index.

It is not a surprise to see the increase, knowing that the top 500 list gets updated to always reflect the best of the best companies at a given time. This is very important because this protects you by not putting your money into companies that may suffer technological advancement threats and 'market disruptors'. Even if some of these companies suddenly go bankrupt or whatever turmoil happens, these will get replaced by new ones and make it to the Top 500 list.

This is the reason why we don't encourage active investing or Do-It-Yourself approach by selecting your own stocks and trying to beat the 'market'. Not only it will stress yourself, but more importantly you will end up investing too much time and lose at the end.

How to invest in S&P 500 ETF?

As a first step, you need to choose which of the S&P 500 ETFs is the best for you.

Because of its popularity in the stock investing world, there are many investment companies that are offering their own version of S&P 500 ETF. Below are the top ones, ticker symbols:

  • VOO (offered by Vanguard)

  • SPY (offered by State Street Global Advisors)

  • IVV (offered by Blackrock)

There are other more funds that tracks S&P 500 but we would recommend to stick with these 3 ETFs. For example, there are managed funds that do this index-tracking, however these usually involves higher fees and charges than just simply trading these listed ETFs. You don't really need someone to manage it for you, as the S&P 500 is already looked at by S&P Global Inc. themselves as explained above.

If you want to know how much is the current price per share of any of this, just can simply google it. For example, if you google VOO share price, you can see that it is currently sitting at US$ 277.

Among these 3 ETFs, as of this writing, we would recommend VOO.

According to VOO profile page, the management expense ratio is just 0.03% expense ratio, which means the fund will cost you $0.30 in annual fees for every $1,000 you invest. In comparison, IVV is 0.04%, while SPY is 0.09%. Though the % difference seems not huge, this stacks up over time and it would have a significant impact in your overall investment income.

This management fee is not separately paid, but is being deducted in the fund's returns. Thus the lower it is, the better so you would have higher net returns in your investment.

So now you know that VOO is the S&P 500 ETF you want to invest into, what's next?

Next step is for you to decide where to buy VOO. There are a no. of trading platforms that you can choose from, just check what are available ones in your country.

The key thing here is that whatever platform you choose, you need to check the minimum investment amount, as well as the fees involved. As much as possible, you would want the platform where there's no minimum investment amount required, as well as you don't get charge with any kind of fees: trading commission fees or brokerage fees, inactivity fees, annual fees, transfer fees, exit fees, etc.

As a summary, find the best trading platform for you (depending on what country you are), sign up and look for VOO to buy.

#sp500 #vanguardetf #stocksinvesting #sharesinvesting

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