How to Invest in the S&P 500: Step-by-Step Guide for First-Time Investors

What Is the S&P 500

The S&P 500 is a stock market index that measures the performance of 500 of the largest publicly traded companies in the United States. It includes household names like Apple, Microsoft, Amazon, and Johnson & Johnson. The index is weighted by market capitalization, meaning larger companies have a bigger influence on its performance.

Since its inception in 1957, the S&P 500 has delivered an average annual return of approximately 10.5%, including dividends. A $10,000 investment in the S&P 500 in 1990 would have grown to over $210,000 by the end of 2025, according to data from Investopedia.

You cannot invest directly in the S&P 500 index itself. Instead, you buy an index fund or ETF that tracks it. These funds hold the same 500 stocks in the same proportions as the index, giving you identical performance minus a tiny fee.

Best S&P 500 Funds to Buy

Vanguard S&P 500 ETF (VOO) is the most popular choice among individual investors. It charges a 0.03% expense ratio and has over $400 billion in assets. VOO is available as an ETF, which means you can buy and sell it throughout the trading day at market prices.

iShares Core S&P 500 ETF (IVV) from BlackRock offers the same 0.03% expense ratio and is virtually identical to VOO in performance. The difference is minimal, and many investors choose based on which brokerage they already use. IVV has slightly higher daily trading volume, which benefits large investors.

SPDR S&P 500 ETF Trust (SPY) is the oldest and most heavily traded S&P 500 ETF, launched in 1993. It charges 0.0945%, which is higher than VOO and IVV but still very low. SPY is popular among active traders for its deep liquidity. For buy-and-hold beginners, VOO or IVV are better due to lower fees. See our full index fund comparison for more options.

Step-by-Step Guide to Investing

Step 1: Open a brokerage account. Choose a platform like Fidelity, Schwab, or Vanguard. If you are investing for retirement, open a Roth IRA for tax-free growth. The application process takes 10 to 15 minutes and requires your Social Security number and bank account details.

Step 2: Fund your account. Transfer money from your bank using an ACH link. Most brokerages make funds available within one to three business days. Some platforms, like Fidelity, offer instant settlement for small deposits so you can start investing immediately.

Step 3: Buy the fund. Search for VOO, IVV, or your chosen S&P 500 fund by ticker symbol. Select "buy," enter the number of shares or dollar amount, and submit a market order. With fractional shares, you can invest any dollar amount, even as low as $1. Set up automatic recurring purchases for dollar-cost averaging.

How Much to Invest in the S&P 500

Financial experts generally recommend investing 15% to 20% of your gross income for retirement. If you earn $50,000 per year, that translates to $625 to $833 per month. However, any amount is better than nothing, and you can absolutely start with $100.

A 2025 J.P. Morgan study found that missing the 10 best trading days in the S&P 500 over a 20-year period cuts your returns in half. This is why staying invested and contributing regularly matters more than timing your entry point.

If you have a lump sum to invest, research from Vanguard shows that investing it all at once outperforms dollar-cost averaging about 68% of the time. But if the thought of a market drop after investing keeps you up at night, spreading your investment over three to six months is a reasonable compromise, according to Bankrate.

Risks and What to Expect

The S&P 500 can and does lose value in the short term. In 2022, it dropped 19.4%. In 2020, it fell 34% in just five weeks before recovering. In 2008, it lost 38.5% for the year. These drawdowns are painful, but they are a normal part of stock market investing.

The good news is that the S&P 500 has recovered from every single crash in its history. The average bear market lasts about 14 months, and the subsequent bull market typically lasts four to five years. Your job as a long-term investor is simply to stay the course.

You should expect year-to-year returns to vary widely. Some years the S&P 500 gains 30%, and other years it loses 15%. The 10.5% average only becomes reliable over 15 to 20 years of holding. This is why the S&P 500 is best suited for money you will not need for at least a decade.

FAQ

Is the S&P 500 a good investment for beginners?

The S&P 500 is one of the best investments for beginners because it provides instant diversification across 500 top companies with minimal effort. Warren Buffett has publicly stated that most investors should simply buy a low-cost S&P 500 index fund. The simplicity and historical performance make it an ideal foundation for any beginner portfolio.

What is the difference between VOO and SPY?

Both track the same S&P 500 index, but VOO charges 0.03% in fees while SPY charges 0.0945%. Over 30 years on a $100,000 investment, that difference costs you about $2,800. VOO is the better choice for long-term investors, while SPY is preferred by short-term traders for its higher liquidity. See our ETF comparison guide for more context.

Can I lose all my money in the S&P 500?

For the S&P 500 to go to zero, all 500 of the largest companies in America would need to fail simultaneously. This has never happened and is virtually impossible. While temporary losses of 20% to 40% do occur during market crashes, the index has always recovered. The bigger risk is not investing at all and losing purchasing power to inflation, which averaged 3.4% in 2025.