Investing in the S&P 500: A Comprehensive Guide for Beginners

An abundance of performance data for S&P 500 stocks makes selecting appropriate stocks relatively easy.

The S&P 500 lists the stocks of 500 large U.S. companies. Standard and Poor's, the compiler of the list, seeks to incorporate in it a representative range of companies in all major business sectors. For this reason, investors and analysts often use returns on investment in the S&P 500 index as a convenient way of assessing the overall market. You can invest in S&P 500 stocks in several ways.

Buying Individual Stocks

You can buy individual stocks listed in the S&P 500 from any major online or full-service brokerage. Lists are widely available online and from Standard and Poor's. Many of them include ratings for each stock listed.

S&P Index Funds

You can also buy an S&P 500 index fund, a pool of all the stocks in the index. The managers of index funds don't actively pick stocks but simply attempt to match the contents of the S&P 500 list. Many fund management companies, including Vanguard and Fidelity, list available S&P 500 index funds. You can buy these through a broker, just as you would any mutual fund.

S&P Exchange Traded Funds

Many management companies sell S&P 500 exchange traded funds, pools of S&P 500 companies that trade like individual stocks. Some of these ETFs are true S&P 500 index funds, while others represent some market segment, such as all value funds or all growth funds in the S&P 500.