How to Invest in the S&P 500 Index Fund in the UK | Moneyfarm (2024)

Most UK investors look to the FTSE 100 index for opportunities when they first start investing. But the FTSE is only a small part of a much larger picture. They are other indexes around, and the one that most UK investors feel comfortable with when they want to take a step up in the smart wealth management stakes is the S&P 500 Index in the US. Hence this article is all about how to invest in S&P 500 from the UK.

The initials “S&P” stand for Standard and Poor. The “500” refers to the size of the index, which lists 500 of the largest companies listed on the US stock market.

What is an index?

According to SeekingAlpha, here are the top 10 dividend yield-paying companies from the S&P 500 Index as of March 2022.

• Restaurant Brand International (QSR) – 3.78% dividend yield
• Bank of Montreal (BMO) – 3.66% dividend yield
• Digital Realty Trust (DLR) – 3.36% dividend yield
• T Row Price Group (TROW) – 3.30% dividend yield
• US Bancorp (USB) – 3.21% dividend yield
• Morgan Stanley (MS) – 2.96% dividend yield
• Advanced Auto Parts (AAP) – 2.92% dividend yield
• Balfour Beaty (BBY) – 2.92% dividend yield
• United Parcel Service (UPS) – 90% dividend yield
• Cummins (CMI) – 2.85% dividend yield

We’ve bandied the word “index” around a few times already in our opening paragraphs, but what is an index? Most readers will be familiar with the term “index” as a page in a book or file that guides you to a specific chapter or section. But it doesn’t have the same meaning when used in relation to the FTSE 100 or the S&P 500 index funds.

When used from an investment perspective, an index like the FTSE 100 or S&P 500 is an indication of how investors feel an economy is progressing. This is because It collects and displays various data from a number of businesses across multiple industries. As for the S&P 500, that number is 500 of the largest companies quoted on the American stock market.

How to invest in the S&P 500 from the UK is something we are about to explain.

Is it possible to invest in the S&P 500 from here in the UK?

The good news is that you can invest in the American stock and shares market. All you need to know about how to invest in the S&P 500 index fund from the UK is about to be explained, including what funds you can buy, which platforms you can use, and how to get started.

First, let’s clarify that you can’t invest in the index directly. But you can invest in the stocks that companies listed in the S&P 500 offer, or purchase an ETF or Index Fund designed to track the S&P’s overall performance. So when it comes to building investment portfolios, you have plenty of choices.

Setting up your investment goals

Knowing your goals is the starting point for the S&P 500 how to invest for UK profit question.

Some ETF or index fund options aim to track a specific number of stocks or are weighted by certain stocks. You need to select which of these objectives better suits your goals.

Choosing a platform

Once upon a time, the only way how to invest in S&P 500 funds for UK investors was to appoint a broker. However, thanks to the World Wide Web, many investors prefer to use online platforms. Therefore, when choosing a platform (or a broker), you should remember that you may only access certain Exchange Traded Funds (ETFs) via specific platforms.

The table below shows a small random selection of platforms UK investors use in order to invest in S&P 500 shares or mutual fund accounts.

Data source as of June 2022, from each platforms’ website. pm= per month, pq= per quarter, pa= per annum

S&P 500 index funds you can buy here in the UK

One of the questions that investors ponder when considering how to invest in S&P 500 UK accessible funds is how many funds are there from which to choose. In terms of funds listed on the London Stock Exchange, there are over 100. But if you open an account with a broker or platform that grants you direct access to the US stock market, there is even more choice. According to buyshares.com, some of the most popular funds include:

• Iboxx $ High Yield Corporate Bd Ishares (HYG)
• iShares Core High Dividend ETF (HDV)
• Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
• iShares Asia Pacific Dividend UCITS ETF (IAPD.L)
• iShares Core US Aggregate Bond ETF (AGG)
• JPMorgan Ultra-Short Income ETF (JPST)
• Schwab US Dividend Equity ETF (SCHD)
• Sequoia Economic Infrastructure Income Fund (SEQI.L)
• Vanguard Growth ETF (VUG)
• Vanguard Total Bond Market ETF (BND)

Key factors on the best S&P 500 ETF UK funds

• There is a wide range of choices regarding ETFs designed to track the S&P 500 Index. When investing in the index via these ETFs, you can access several options that offer various risk tolerances.
• The only fee you will usually be charged when trading ETFs is the expense ratio. This ratio, usually charged as a percentage, reflects the cost of any administration, marketing, and portfolio management. In other words, it is the provider’s operating costs, and you need to take them into account because they affect your bottom line.

The performance of the S&P 500 index in 2021

One might have expected the performance of the S&P 500 index to have suffered last year, given the impact of the COVID-19 pandemic. It didn’t. While the FTSE 100 closed at its highest since 2016, the S&P 500 had its best-ever year, closing at 4,766.18 points.

If you are looking for investment information regarding the S&P 500, there are several resources and articles online to help with your investment journey.

Why should you invest in the S&P 500?

The decision of whether or not to buy shares and how to invest in the S&P 500 UK available funds will be influenced by your attitude towards risk. The value of your investments can fall as well as rise. But as any good financial advisor will tell you, the ways of minimising risk are investing over the long term and constructing a diversified portfolio. Opening a general investment account might be your best bet.

The main reason that people choose S&P 500 index funds to track the general market is that they are an excellent bet for investors who are looking for steady growth in the long term, without taking undue risks. Again, 2021’s closing position is a good indicator.

Another option when considering how to invest in S&P 500 UK funds is trading S&P 500 futures. Each contract is an immediate, indirect investment in the index’s performance, and investors can opt for long or short positions according to their future results expectations.

What are the pros and cons?

• Pro – Considered an essential benchmark for the US stock market.
• Pro – Captures the pulse of the US economy representing over 500 of the largest US companies.
• Con – Omits the majority of SMEs that comprise the majority of the US economy.
• Con – Disproportionate weighing on the side of the larger companies.

Financial information usually drives investors to buy stocks and shares rather than put their money into cash savings accounts. So for example, when you know how to buy S&P 500 Index fund, UK options or stocks and shares in other indexes like the FTSE 100, the returns are likely to be considerably higher than putting your money into cash savings accounts.

It’s an important consideration, especially here in the UK, where it’s just been announced that inflation has reached 9.1% – the highest in 40 years. Moreover, the interest offered on cash savings is no more than around 1.8% maximum, so cash savings will start devaluing at an alarming rate.

According to Rishi Sunak, the Chancellor of the Exchequer, and most finance professionals agree, inflation will reach 8.7% by the end of the year. Some people think it may even surpass 10%, given the current fuel and energy crisis and the Russian invasion of Ukraine.

Is it safe to invest right now?

With the UK’s soaring inflation rate, many people may consider investing to hedge against inflation. As long as you are prepared to invest in the long term and build a diversified inflation-protected portfolio. As Warren Buffet stated at a Berkshire Hathaway annual shareholders meeting in 2021, “I do not think the average person can pick stocks” and recommended investing in the S&P 500 index fund.

Suppose you prefer to take more of a passive role, like many people. In that case, you can appoint a portfolio manager to manage your investments and realign them when necessary to take advantage of current trends.

Of course, when looking at how to invest money, you need to consider the best way and you may want to find out more about how to invest in S&P 500 UK available funds. In that case, you should chat with a professional FCA – approved personal financial wealth specialist. There are many things to consider, including the company’s management fees.

Many Investors are now favouring US-centric enterprises after Russia invaded Ukraine. If you are of a similar mind, and with the latest news about the US exporting gas to Europe is likely to boost their economy, the S&P 500 could be the right route.

FAQ

What is the S&P 500?

The S&P 500 (Standard and Poors’ 500) is an index that tracks the performance of the 500 largest publicly traded companies listed on the stock exchange market in the United States.

What are the advantages of investing in index funds in the UK?

You gain exposure to a wide variety of top-performing companies and industries. The long-term returns are great and consistent. Index funds eliminate having to analyze and pick stocks for hours at a time. Also, they are very liquid.

Can I invest in the S&P 500 from the UK?

Yes, you can invest in the S&P 500 but you can’t invest directly in the index. However, you can buy stocks and shares in the companies listed in the S&P 500. Another way to invest in an index is to buy index mutual funds or index ETFs that track the performance of the S&P 500.

*Capital at risk. Tax treatment depends on your individual circ*mstances and may be subject to change in the future.