If you had invested $1,000 in an S&P 500 index fund 30 years ago, it would be worth roughly $20,000 today, without picking a single stock. That's the power of index investing, and you don't need a finance degree to start.
The S&P 500 tracks 500 of the largest US-listed companies. When you invest in an S&P 500 index fund, you own a tiny piece of all of them at once. It's one of the most widely used tools for long-term wealth building.
What You'll Need
Before you invest your first dollar, make sure you have these in place:
- A brokerage account or IRA (we'll walk you through opening one)
- A bank account linked to that brokerage
- A Social Security Number for account verification
- A clear sense of your investment timeline and goals
You don't need a large sum to start. Many brokerages allow you to buy fractional shares of an index fund with as little as $1.
Step 1: Understand What the S&P 500 Is
The S&P 500 is an index, not a stock. It measures the performance of 500 large US companies weighted by market capitalization. You can't buy the index directly, but you can buy funds that track it.
There are two main types: index mutual funds and exchange-traded funds (ETFs). Both track the S&P 500 closely. ETFs trade throughout the day like stocks, while mutual funds price once per day. For most beginners, either works well.
Popular S&P 500 funds include the Vanguard S&P 500 ETF (VOO), Fidelity's FXAIX mutual fund, and the SPDR S&P 500 ETF Trust (SPY). Each charges a very low annual fee (called an expense ratio), typically 0.03% to 0.09%.
Step 2: Choose an Account Type
Where you hold your investment matters almost as much as what you invest in.
Taxable brokerage account: You can deposit any amount and withdraw at any time. Capital gains taxes apply when you sell at a profit. Good for goals outside of retirement.
Traditional IRA: Contributions may be tax-deductible now, but you'll pay taxes when you withdraw in retirement. The 2025 contribution limit is $7,000 per year ($8,000 if you're 50 or older).
Roth IRA: You contribute after-tax dollars, but your money grows tax-free and qualified withdrawals in retirement are tax-free. Great for younger investors in lower tax brackets.
401(k): If your employer offers a 401(k) with a match, that's free money, and your first priority before any other account. Many 401(k) plans include S&P 500 index fund options.
Step 3: Open a Brokerage Account
Choose a brokerage that offers the S&P 500 fund you want at low or no transaction cost.
Robinhood lets you start investing in S&P 500 ETFs like VOO and SPY with as little as $1 through fractional shares. The account opens in minutes, requires no account minimum, and charges no commission on trades. It's a practical entry point for beginners who want to start small.
Robinhood
Robinhood
Robinhood is a trading platform that brings stocks, ETFs, options, futures, prediction markets, crypto, and retirement accounts together in one app.
Standout feature
One platform for stocks, ETFs, options, futures, prediction markets, and crypto
Fees
$0 commission on stocks, ETFs, and options.
Pros
Zero-commission trading on stocks, ETFs, and options
Cons
Best perks (high APY, lower margin rates) require Gold subscription ($5/month)
Other popular options include Fidelity (which offers FXAIX with no minimum investment), Vanguard (ideal for long-term investors who want to buy VOO), and Charles Schwab (which offers its own low-cost S&P 500 ETF, SCHX).
When opening your account, you'll complete an application, verify your identity, and link a bank account for funding. Most accounts are approved and ready within one business day.
Step 4: Fund Your Account
Transfer money from your bank account to your brokerage. Most platforms support ACH transfers, which typically take 1-3 business days. Some brokerages give you instant buying power while the transfer clears.
Decide on a starting amount that won't leave you financially stressed. A common approach is to start with whatever you can afford to leave untouched for at least 3-5 years, since short-term market swings can cause temporary losses.
Step 5: Buy an S&P 500 Index Fund
Search for the fund you want by ticker symbol (VOO, SPY, FXAIX, or SCHX are common choices). Review the fund's expense ratio, which is the annual cost expressed as a percentage of your investment.
Place a market order (which executes at the current price) or a limit order (which executes only if the price reaches your specified level). For beginner investors buying long-term, a market order is usually fine.
If you're buying a fractional share, enter the dollar amount you want to invest rather than a number of shares. If you want a full walkthrough of placing your first order, see our guide on how to buy ETFs.
Step 6: Set Up Recurring Investments
Consistency matters more than timing. A strategy called dollar-cost averaging means investing a fixed amount at regular intervals, regardless of market conditions. Over time, you'll buy more shares when prices are low and fewer when prices are high, smoothing out volatility.
Most brokerages allow you to automate this. Set up a monthly or biweekly transfer and automatic purchase so you invest without thinking about it.
Tips to Keep in Mind
Investing in the S&P 500 carries risk of loss. Market downturns happen regularly, and the index can fall significantly over short periods. The historical average of around 10% per year includes major crashes like 2008-2009 and the 2020 pandemic selloff. Long-term investors who stayed the course recovered and grew.
Don't check your portfolio daily. Short-term price movements are noise. The S&P 500 is a long-term tool, and frequent monitoring can lead to emotional decisions that hurt your returns.
Reinvest dividends. Most S&P 500 funds pay quarterly dividends. Setting your account to automatically reinvest them compounds your growth over time.
Frequently Asked Questions
How much money do I need to start investing in the S&P 500?
With fractional shares available on platforms like Robinhood and Fidelity, you can start with as little as $1. There's no practical minimum for most modern brokerages. A more realistic starting point that allows meaningful growth might be $50-$200 per month, but even small consistent investments add up significantly over a decade or more.
Is the S&P 500 safe for beginners?
The S&P 500 is considered a lower-risk entry point compared to individual stocks because it diversifies across 500 companies. However, it is not risk-free. The index can and does decline, sometimes sharply in the short term. It's best suited for money you won't need for at least 3-5 years. Past performance does not guarantee future results.
What's the difference between an S&P 500 ETF and an S&P 500 mutual fund?
Both track the same index and have similar expense ratios. ETFs trade on an exchange throughout the day like a stock, while mutual funds are priced once per day after the market closes. ETFs require buying whole or fractional shares, while mutual funds let you invest a specific dollar amount directly. For most beginners, the practical differences are minimal.
Should I invest in the S&P 500 through a Roth IRA or a regular brokerage account?
If you're eligible for a Roth IRA and expect your income to grow over time, it's generally worth maxing that out first before using a taxable brokerage account. The tax-free growth in a Roth IRA can make a large difference over decades. If you've already maxed your IRA contributions, a taxable brokerage account is the next step. Consult a financial advisor for advice tailored to your situation.
