How to invest in an S&P 500 index fund

What is an S&P 500 index fund? 

An S&P 500 index fund is a type of investment fund that aims to track the performance of the S&P 500, one of the most widely followed stock market indices in the world. This index includes 500 of the largest publicly traded companies in the United States, covering a wide range of sectors such as technology, healthcare, finance and consumer goods.

Instead of trying to pick individual stocks or outperform the market, an S&P 500 index fund simply mirrors the composition of the index. This means the fund holds shares in the same companies, in similar proportions, as the S&P 500 itself. As a result, investors gain exposure to a broad cross-section of the US economy in a single investment.

Index funds are considered a form of passive investing. Because they follow a fixed benchmark, they typically come with lower fees and less active management than traditional mutual funds. This makes them appealing to long-term investors looking for a cost-effective way to build wealth over time.

S&P 500 index funds are also known for their simplicity and diversification. By investing in one fund, you’re spreading your risk across hundreds of companies. These funds are often recommended for beginners because they provide a solid foundation for any investment portfolio.

Historically, the S&P 500 has delivered strong returns over time, making it a popular choice for those seeking steady, long-term growth with minimal complexity.

Benefits and risks of investing in S&P 500 index funds

Benefits of investing in S&P 500 index funds

One of the biggest benefits of S&P 500 index funds is diversification. By holding shares in 500 companies across multiple sectors, your investment is naturally spread out. If one industry performs poorly, others may help balance out the impact. This built-in diversification reduces the risk associated with holding just a handful of individual stocks.

Low costs are another reason why these funds are so popular. Because S&P 500 index funds follow a passive strategy, they don’t require a team of analysts to research or select stocks. This keeps management costs down. Many funds have expense ratios below 0.10%, which is far lower than actively managed mutual funds.

Finally, there’s the appeal of long-term performance. Historically, the S&P 500 has delivered an average annual return of about 10% over the past 50 years. While returns vary year to year, it has proven to be a strong performer over time, especially when held for the long haul. But remember, past performance doesn't indicate future results. 

Risks of investing in S&P 500 index funds

Like any investment, index funds are not risk-free. They are tied to the stock market, so short-term volatility is always a possibility. Market downturns can temporarily reduce the value of your investment, even if you’re holding for the long term.

Another risk is lack of flexibility. These funds replicate the index exactly, so you can’t avoid individual companies even if they start to underperform. You’re essentially buying into the good and the bad, and must accept the overall direction of the index.

Lastly, geographic concentration is a factor. S&P 500 funds hold only US companies, which means you won’t get exposure to international markets or emerging economies. If the US market enters a prolonged slump or experiences unique economic challenges, your fund could underperform compared to more globally diversified options.

Types of S&P 500 index funds 

There are two main types of S&P 500 index funds: mutual funds and ETFs (exchange-traded funds). Both offer exposure to the same 500 companies, but they differ in how they’re bought, traded, and accessed.

Mutual funds are typically purchased directly from fund providers. They often require higher minimum investments and only trade once per day after the market closes. These funds are common in retirement accounts like 401(k)s and IRAs, where long-term investing and less frequent trading are the norm. They may also include automatic dividend reinvestment and offer simplicity for set-it-and-forget-it investors.

ETFs, on the other hand, trade like stocks on an exchange. You can buy or sell them throughout the day, and they often have lower minimums – sometimes just a few dollars, especially with fractional shares. ETFs are ideal for hands-on investors who want real-time flexibility, or those using automated tools like recurring buys or limit orders.

Popular providers include Vanguard (VOO), Fidelity (FXAIX), and Schwab (SWPPX) – all offering reputable, low-cost S&P 500 funds with long-term track records and strong investor trust. Fees and features may vary slightly, so it’s worth comparing fund details before choosing.

How to invest in an S&P 500 index fund

1. Choose and open the right type of securities account
2. Select your S&P 500 fund
3. Make your first investment
4. Monitor and maintain your investment

1. Choose and open the right type of securities account

The first step is deciding where you want to hold your investment. Most people use either a taxable brokerage account or a tax-advantaged account like an IRA or 401(k). If you’re investing for retirement, options like a Roth IRA can offer long-term tax benefits, including tax-free growth and withdrawals if you meet certain conditions.

Brokerage accounts are more flexible and allow you to withdraw at any time, but gains may be subject to capital gains tax. Choose what suits your financial goals and time horizon.

With the Crypto.com App, you can open a brokerage account in minutes and browse a wide range of stocks and ETFs, including S&P 500 funds, with zero commission. The app’s clean design makes it easy to manage everything in one place.

2. Select your S&P 500 fund

Once your account is ready, choose the fund that fits your needs. You’ll find mutual funds and ETFs that track the S&P 500 – both aim to replicate the same index but differ in how they’re accessed and traded.

Focus on the expense ratio, which shows the fund’s annual cost. Lower may be better; many top funds charge less than 0.10 percent. Also check tracking accuracy, which tells you how closely the fund follows the index, and liquidity, especially for ETFs, to ensure smooth trading.

3. Make your first investment

When you’ve picked your fund, it’s time to invest.

1. Log in to your app or platform
2. Search for the fund by ticker (e.g., VOO or FXAIX)
3. Choose how much you want to invest
4. Review the trade and confirm

Many platforms, including ours, support fractional shares, allowing you to invest with just a few dollars. This makes it easier to start small and build over time. You’ll also enjoy zero commission on stock and ETF purchases, helping your money go further.

4. Monitor and maintain your investment

Even though S&P 500 index funds are long-term investments, it’s still a good idea to check in regularly. Set a reminder to review your portfolio every three to six months, especially if your financial goals change.

Automation tools in the Crypto.com App, like price alerts and custom watchlists, make it easier to stay consistent. These features help reduce emotional decision-making and keep your plan on track.

You may also need to rebalance once a year. This ensures your portfolio maintains the right mix between stocks, bonds, and other assets – especially if market conditions have shifted or you’ve added new investments like crypto or international funds.

Tips for successful index investing

Succeeding with index investing isn’t about perfect timing, it’s about smart, consistent habits that compound over time.

• Be consistent. Making regular contributions helps build wealth steadily, even when markets fluctuate. Small, repeated investments can have a big impact over the long term.
• Use dollar-cost averaging (DCA). This strategy involves investing a fixed amount at regular intervals. It smooths out the highs and lows, removing emotion from the decision-making process.
• Think long term. Index funds are designed to grow over years, not days. While short-term dips are normal, history shows that markets tend to recover and increase in value over time.
• Don’t panic. Emotional decisions during market downturns often lead to selling low and missing out on rebounds. A strong investment plan will guide you through the ups and downs.
• Review your goals annually. Major life events, like a job change, home purchase, or family addition, may change how much risk you can take or how much you want to invest.
• Watch out for hidden fees and platform costs. Even index investing can become expensive if you're using a platform with high trading fees or account charges. Choose a provider that’s transparent about costs and supports low-cost investing.

Get started with S&P 500 investing today

1. Create your free Crypto.com account 
2. Enjoy zero-commission investments on stocks and ETFs
3. Deposit easily via bank transfer, debit card, Apple Pay or Google Pay
4. Diversify your portfolio with fractional shares and automation tools

FAQs about S&P 500 funds

Is there a minimum investment?
Yes, but it depends on the fund. Some mutual funds require $3,000 or more, while ETFs can be bought with less than $10, especially if fractional shares are offered.

Are S&P 500 index funds taxable?
In taxable accounts, yes. You’ll owe capital gains and possibly dividends. In IRAs or 401(k)s, taxes are deferred or waived depending on the account type.

How often should I invest?
Many investors use monthly contributions. This approach encourages consistent investing regardless of market conditions, helping to smooth out volatility over time and potentially lower the average cost per share.

Can I lose money in an index fund?
Yes, while index funds are diversified, they’re still tied to the stock market. If the market drops, your fund value may fall. But historically, markets recover over time.

How do I choose the best S&P 500 fund?
Look at expense ratios, tracking accuracy and reputation. Compare how closely each fund mirrors the index’s performance over time, and ensure it aligns with your investment goals and risk tolerance.

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All investments involve risk, and not all risks are suitable for every investor. The value of securities may fluctuate and as a result, clients may lose more than their original investment. The past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit or protect against loss in a down market. There is always the potential of losing money when you invest in securities or other financial products. Investors should consider their investment objectives and risks carefully before investing.

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