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The 2 Best Ways to Invest in the S&P 500 Index

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The 2 Best Ways to Invest in the S&P 500 Index

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The S&P 500 Index is an excellent indicator for assessing the overall performance of the US stock market. The funds that follow the S&P 500 Index create the foundation for investor buy and hold portfolios, making learning to invest in the benchmark a crucial ability to know.

There are two ways to better invest in the S&P 500. The first option is to use index funds and the second is to use exchange traded funds (ETFs). Although these two funds share some differences, they are low cost investments that offer great diversification.

Index funds

Index funds that closely mirror the performance of the S&P 500 often include most or all of the stocks listed in the index. The shares of the fund are then sold to allow investors to gain exposure to several constituent investments.

There are several S&P 500 index funds available, and the following categories can help you choose a fund that’s right for your portfolio:

Expense ratio

The expense ratios, the fees associated with managing an investor’s fund, are quite low since index funds are passively managed. This means that no in-depth research or trading is required, as fund managers only need to buy and sell stocks to ensure the fund’s asset mix aligns with the S&P 500. .

Most S&P 500 index funds perform similarly. It is therefore essential to choose a fund with the lowest possible expense ratio.

Minimum investment

You need to see if the minimum purchase amount for an S&P 500 index fund matches the amount you plan to invest. Once you have determined this, you can purchase any fractional dollar value of shares that you want.

Note that if you are buying index funds for taxable investment accounts or retirement accounts, each of them requires a different minimum investment.

Dividend yield

Different S&P 500 index funds offer different dividend yields. Therefore, it is important to compare them because dividends can further increase your potential returns even when the markets are down.

Creation date

S&P 500 index funds with longer inception dates allow you to understand how an index fund has survived bull markets and minimized losses during bear markets. It is this information that justifies the verification of the creation date of a fund.

Exchange Traded Funds (ETFs)

ETFs work like index funds, the difference being that stocks issued by an ETF trade like stocks and the values ​​have been fluctuating throughout the day. On the other hand, stocks of index funds only trade once a day when the markets are already closed for the day.

When choosing an S&P 500 ETF, you should base your decision on factors such as:

Liquidity

ETFs with higher trading volumes are more liquid than those with lower trading volumes. If you are a buy and hold type investor, you don’t need to worry too much about ETF liquidity.

However, if you are an active investor with a taxable brokerage account, you should familiarize yourself with the potential impact of ETF liquidity on your investment plan.

Dividend yield

Make sure that the dividend yield of an S&P 500 ETF you are considering is at least equal to or greater than that of the best S&P 500 ETFs.

Creation date

Older ETFs can reassure you, as they have gone through many cycles of highs and lows, proving their ability to maintain good performance over the long term.

The 2 Best Ways to Invest in the S&P 500 Index

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