If you want to invest in the S%26P 500, you'll first need a brokerage account. It could be a retirement account, such as a traditional IRA or a Roth IRA, an employer-sponsored 401 (k) or similar, or your own traditional taxable brokerage account. There are many brokerage houses to choose from. Adding funds to your Roth IRA is great, but you also need to invest them or they won't grow.
The easiest way to invest is in the S%26P 500, which basically owns 500 of the largest and most successful public companies in the U.S. UU. Founded in 1976, Bankrate has a long history of helping people make smart financial decisions. We've maintained this reputation for more than four decades by demystifying the financial decision-making process and giving people confidence in the steps they need to take next.
Standard %26 Poor's 500 index funds are among today's most popular investments, and it's no wonder why. The S%26P 500 index on which these funds are based has achieved an average annual return of around 10 percent over time and represents hundreds of the best companies in the United States. With an S%26P 500 index fund, you own the market, instead of trying to overcome it. Once you've selected your index fund, you'll want access to your investment account, whether it's a 401 (k), IRA, or regular taxable brokerage account.
These accounts allow you to buy mutual funds or ETFs, and you can even buy stocks and bonds later, if you so choose. Once you've discovered how much you can invest, transfer that money to your brokerage account. Then, set up your account to regularly transfer the amount you want from your bank each week or month. Or you can set up your 401 (k) account to transfer money from every paycheck.
By contrast, the Dow Jones Industrials contains only 30 companies, while the Nasdaq 100 contains about 100 companies. Although the shares of these indices overlap, the S%26P 500 contains the widest variety of companies from all sectors and is the most diversified of these three indices. As long as your time horizon is three to five years or more, an S%26P 500 index fund could be a good addition to your portfolio. However, any investment can produce poor returns if bought at overvalued prices.
However, that has not proven to be a problem for these funds, as investors enjoy an annual return of around 10 percent on average over long periods of time. Regardless of whether you choose an S%26P 500 index fund or an ETF, know that these funds are still a solid tool for accessing large-cap stocks for your portfolio without having to examine individual stocks. With traditionally low management fees and a wide range of investment minimums, you'll have many options that align with your assets and investment strategy. For most people, index funds and S%26P 500 ETFs are functionally the same, and you'll want to choose the fund, whether it's an index or an ETF, that has the lowest cost and the financial minimums that make sense for your investment objectives.
If you're really torn between two, you might consider using one fund in your 401 (k) and the other in an IRA or taxable investment account. Alana Benson is an investment writer who covers topics of socially responsible investment and ESG, financial advice and investment for beginners. The investment information provided in this table is for general informational and educational purposes only and should not be construed as financial or investment advice. Once you know the S%26P index fund you want to buy and how much you can invest, go to your broker's website and set up the trade.