Sterling Savvy

>

How to Invest in the S&P 500 from the UK

Tobi Opeyemi Amure
Reviewed by:
How to Invest in the S&P 500 from the UK

In a nutshell, to invest in the S&P 500 from the UK, you can use a brokerage platform that offers access to US stock markets or S&P 500 index funds and ETFs. After setting up and funding your account, you can invest in an S&P 500 ETF like SPDR S&P 500 ETF Trust (SPY) or Vanguard S&P 500 ETF (VOO), or a mutual fund tracking the S&P 500. It’s important to consider factors like platform fees, fund expense ratios, and exchange rate risks when investing.

Investing in the S&P 500, a renowned global stock market index has become increasingly accessible for UK investors.

In this article, I explore the available avenues for UK investors to access the S&P 500, including ETFs, index funds, and individual stocks.

I also cover crucial considerations such as currency risk, taxes, and geopolitical impacts.

This article was reviewed by Tobi Opeyemi Amure, an investing expert and writer at InvestopediaInvesting.com, and Trading.biz.

Quick Steps to Invest in the S&P 500 from the UK

Here’s a quick step-by-step guide on investing in an S&P 500 fund, such as an ETF:

  1. Choose an S&P 500 Index Fund or ETF: Begin by researching and comparing different S&P 500 funds, considering factors such as their expense ratios, historical performance, and fund size.
  2. Set up a share dealing account: To invest in an S&P 500 fund, open an investment account with a platform that offers index funds. Note that specific index funds might be exclusive to certain brokerages, as listed in the information above.
  3. Fund your account: Deposit money into your account for investment. Be aware of potential deposit fees and foreign exchange fees for converting GBP to USD.
  4. Invest in the S&P 500 fund: After depositing funds, purchase your chosen S&P 500 index fund. Keep in mind that investing in an ETF or index fund usually involves a small annual management fee.

What is the S&P 500?

The S&P 500, short for Standard & Poor’s 500, is a widely recognised stock market index in the United States.

It represents the performance of 500 large-cap companies listed on American stock exchanges, encompassing various sectors of the economy.

The index is designed to provide a snapshot of the overall health and performance of the U.S. stock market, serving as a benchmark for investors and fund managers.

Included in the S&P 500 are some of the world’s most influential and well-known companies, spanning industries such as technology, finance, healthcare, consumer goods, and more.

As a diversified index, the S&P 500 offers investors an opportunity to gain exposure to a broad range of leading companies and participate in the potential growth of the American economy.

Why Invest in the S&P 500?

Investing in the S&P 500 offers several compelling reasons for investors.

Here are three main reasons why investing in the S&P 500 can be advantageous:

1. Diversification

The S&P 500 consists of 500 large-cap companies from various sectors, providing investors with a diversified portfolio.

This diversification helps mitigate the risk associated with investing in individual stocks and sectors.

By spreading investments across multiple companies and industries, investors can reduce their exposure to company-specific risks and potentially benefit from the overall growth of the U.S. economy.

2. Long-Term Growth Potential

Historically, the S&P 500 has demonstrated strong long-term growth.

Over extended periods, the index has delivered competitive returns, outperforming many other investment options.

Investing in the S&P 500 allows individuals to participate in the success of established and innovative companies that have a track record of driving economic growth and generating shareholder value.

3. Access to Leading Companies

The S&P 500 includes some of the world’s most prominent and influential companies.

By investing in the index, individuals gain exposure to industry leaders in technology, finance, healthcare, consumer goods, and other sectors.

This provides an opportunity to benefit from the growth and profitability of these well-established companies, which often have a global reach and market dominance.

How to Invest in the S&P 500 in the UK – Step-By-Step Guide

Investing in the S&P 500 from the UK requires navigating through specific processes and platforms.

Here is a step-by-step guide to help you invest in the S&P 500:

Step 1: Research & Understanding

Before diving into any investment, it’s crucial to conduct thorough research and gain a comprehensive understanding of the S&P 500, its historical performance, constituent companies, and associated risks.

Familiarise yourself with the basics of stock market investing, asset allocation, and diversification.

Step 2: Select an Investment Platform

To invest in the S&P 500 from the UK, you need to choose a reliable investment platform or brokerage that offers access to U.S. markets.

Look for platforms that provide access to U.S. listed securities, including exchange-traded funds (ETFs) or mutual funds tracking the S&P 500.

Consider factors such as fees, ease of use, available research tools, and customer support.

You may find my guide on the best investment platforms UK useful for selecting or here is the quick list below:

  1. eToro – Best overall & for copy trading
  2. interactive investor – Best for a large selection of investment options
  3. Freetrade – Best for free share upon signup
  4. Hargreaves Lansdown – Best for access to personal financial advisors
  5. AJ Bell – Best for a seamless investing experience

Step 3: Open a Brokerage Account

Once you’ve selected a suitable investment platform, open an account with them.

The account opening process typically involves providing personal information, proof of identity, and sometimes proof of address.

Complete the required forms and comply with any verification procedures requested by the platform.

Step 4: Fund Your Account

After opening the brokerage account, you need to deposit funds into it.

Determine how much you want to invest and transfer the desired amount from your bank account to your brokerage account.

The funding process may involve linking your bank account to the brokerage account or initiating a wire transfer.

Step 5: Currency Considerations

As a UK investor, you will likely be investing in U.S. dollars when accessing the S&P 500.

Consider the currency exchange rate and associated costs when converting your pounds to dollars.

Some investment platforms offer currency exchange services, allowing you to convert your funds within the platform itself.

Step 6: Select an Investment Vehicle

Within your chosen investment platform, identify the investment vehicle that tracks the S&P 500.

The most common options are ETFs and index funds.

ETFs available on eToro.
ETFs available on eToro.

These investment products aim to replicate the performance of the S&P 500 by holding a diversified portfolio of the index’s constituent stocks.

Evaluate the fees, performance history, and tracking accuracy of the available options.

Step 7: Place Your Investment Order

Once you have identified the S&P 500 investment vehicle, place your investment order on the investment platform.

Specify the number of shares or the dollar amount you wish to invest.

Ensure that you review and confirm the order details, including any associated fees or commissions, before finalising the transaction.

Step 8: Monitor & Manage Your Investment

After investing in the S&P 500, regularly monitor the performance of your investment.

Stay informed about market trends, economic developments, and company news that may impact the S&P 500.

Consider implementing a disciplined approach to portfolio management, including periodic reviews, rebalancing, and adjusting your investment strategy as needed.

Some of the most popular S&P 500 index funds, based on their assets under management and reputation, include:

  1. Vanguard 500 Index Fund (VFIAX): The Vanguard 500 Index Fund is one of the largest and most well-known S&P 500 index funds. It aims to track the performance of the S&P 500 by investing in a diversified portfolio of the index’s constituent stocks. Vanguard is known for its low-cost investment options.
  2. SPDR S&P 500 ETF Trust (SPY): The SPDR S&P 500 ETF Trust, often referred to as SPY, is one of the oldest and most heavily traded ETFs tracking the S&P 500. It offers investors broad exposure to the index and is known for its liquidity, making it popular among both individual and institutional investors.
  3. iShares Core S&P 500 ETF (IVV): The iShares Core S&P 500 ETF is another widely recognised and frequently traded ETF that seeks to replicate the performance of the S&P 500. It is known for its low expense ratio and comprehensive coverage of the index.
  4. Fidelity 500 Index Fund (FXAIX): The Fidelity 500 Index Fund is a popular choice among Fidelity investors seeking exposure to the S&P 500. It aims to track the performance of the index and offers competitive expense ratios.
  5. Schwab S&P 500 Index Fund (SWPPX): The Schwab S&P 500 Index Fund is a low-cost mutual fund that seeks to mirror the performance of the S&P 500. It is known for its affordability and accessibility, particularly for investors who utilise Schwab’s brokerage platform.

Index Fund vs ETFs

When investing in the S&P 500, there are two main options: index funds and exchange-traded funds (ETFs).

Index funds aim to replicate the index’s performance by buying and selling its constituent shares, while ETFs trade on stock exchanges and also seek to replicate the index’s performance.

Index funds are passive, managed by computer algorithms, and tend to have lower annual management fees compared to actively managed funds.

The average fee for North American index funds is around 0.1%.

The UBS S&P 500 Index Fund has been a top performer with a five-year total return of 82% and an annual management charge of 0.09%.

ETFs, like index funds, aim to replicate the index’s performance.

Some track the entire index, while others focus on specific niches.

The HSBC S&P 500 UCITS ETF has a five-year total return of 83% and an annual management charge of 0.09%.

Notable ETFs for S&P 500 exposure include the Vanguard S&P 500 UCITS ETF, offering low costs and potential outperformance through stock lending, and the iShares S&P 500 GBP Hedged UCITS ETF, which provides exposure to the benchmark while hedging against fluctuations in exchange rates.

Both index funds and ETFs offer investors an opportunity to invest in the S&P 500 with varying expense ratios and strategies.

It’s essential to consider factors such as costs, performance, and specific features like hedging when selecting the most suitable option for your investment goals.

Other Ways to Invest in the S&P 500 from the UK

Aside from traditional index funds and ETFs, there are alternative methods to gain exposure to the S&P 500, such as trading derivatives.

Here are two commonly used options:

  1. Spread Betting: Investors can engage in spread betting by wagering a specified amount per point of movement in the S&P 500 index. They can take a “short” position, hoping the index will fall, or a “long” position, expecting the index to rise. Spread betting allows investors to potentially profit from both upward and downward movements in the market.
  2. Contract for Differences (CFDs): Similar to spread betting, CFDs enable investors to speculate on the underlying movement of the S&P 500 index. Investors can take short or long positions, anticipating market movements. CFDs offer flexibility in trading various financial instruments, including indices, with the potential for leveraged positions.

Both spread betting and CFDs allow investors to access the S&P 500 with leverage, meaning they can trade with borrowed funds alongside their capital.

This leverage provides the opportunity for increased profits.

However, it’s important to note that leverage also amplifies potential losses, as adverse market movements can result in significant financial setbacks.

When considering trading derivatives, it is essential for investors to carefully assess their risk tolerance and develop a well-defined trading strategy.

Due to the speculative nature and amplified risks associated with leverage, it’s crucial to have a thorough understanding of these instruments and closely monitor market conditions.

Additionally, it’s recommended to choose a reputable and regulated trading platform that offers transparent pricing, reliable execution, and risk management tools to support informed decision-making.

Investors should exercise caution when engaging in derivatives trading, conduct thorough research, and consider seeking professional advice to ensure they are well-prepared to navigate the complexities of these alternative investment vehicles.

Investing in the S&P 500 by Purchasing Individual Stocks and Shares

Finally, investing in the S&P 500 by purchasing individual stocks and shares can be an option for investors in the UK.

It allows investors to directly buy shares in specific companies listed on the S&P 500, irrespective of their location.

The S&P 500 comprises renowned global companies, including industry giants such as Disney, Apple, Microsoft, Amazon, and Coca-Cola.

Investing in individual stocks enables investors to select specific companies they want to be a part of and potentially benefit from long-term capital appreciation.

Additionally, holding individual stocks may provide an opportunity to receive dividends, generating passive income from their investments.

However, it is important to note that investing in individual stocks can be costly, particularly when dealing with high-priced stocks worth hundreds of dollars per share.

Additionally, investors may encounter brokerage commissions or fees for each trade, which can impact overall returns.

Furthermore, purchasing individual stocks requires making investment decisions independently, which carries the responsibility of thorough research and analysis.

The pressure of choosing suitable investments and managing a diversified portfolio may make this strategy unsuitable for all investors.

It is important to carefully consider the costs, risks, and expertise required when investing in individual stocks.

I think overall most investors should consider index funds or ETFs, which provide broader exposure to the S&P 500 without the need for individual stock selection and management.

Pros & Cons of Investing in the S&P 500

Investing in the S&P 500, like any investment, comes with its own set of advantages and disadvantages.

Let’s explore the pros and cons of investing in the S&P 500:

Pros of Investing in the S&P 500:

  • Diversification: The S&P 500 represents a broad range of companies from various sectors, offering diversification within a single investment. By investing in the index, you gain exposure to multiple industries and reduce the risk associated with investing in individual stocks.
  • Growth Potential: Historically, the S&P 500 has delivered strong long-term returns. Investing in a diversified portfolio of established and innovative companies can provide an opportunity to participate in the growth of the American economy over time. The index includes industry leaders and has a track record of generating shareholder value.
  • Accessibility: The S&P 500 is widely accessible to individual investors. There are numerous investment options available, including index funds, ETFs, and individual stock purchases, making it easier for investors to gain exposure to the index and capitalise on its growth potential.

Cons of Investing in the S&P 500:

  • Market Volatility: The stock market, including the S&P 500, can experience significant price fluctuations and periods of volatility. Market downturns can impact the value of investments, and short-term market movements may cause temporary losses or fluctuations in portfolio value. It is important for investors to be prepared for market fluctuations and have a long-term investment perspective.
  • Concentration Risk: While the S&P 500 offers diversification, it is still concentrated in the U.S. market. Investing solely in the S&P 500 may result in overexposure to specific sectors or companies. It’s important to consider diversifying beyond the S&P 500 to mitigate concentration risk and gain exposure to other global markets.
  • Limited International Exposure: The S&P 500 focuses solely on U.S.-based companies, which means it may not provide direct exposure to international markets. If you are seeking global diversification, investing solely in the S&P 500 may not be sufficient, and you may need to consider additional investments in international indices or companies.

Final Thoughts

Investing in the S&P 500 from the UK offers UK-based investors the opportunity to tap into the growth potential and diversification benefits of one of the world’s most prominent stock market indices.

With the availability of index funds, ETFs, and individual stock purchases, accessing the S&P 500 has become increasingly convenient and accessible.

However, it’s crucial to carefully consider factors such as fees, currency risk, tax implications, and individual investment preferences before making investment decisions.

Whether seeking long-term growth, portfolio diversification, or exposure to leading global companies, investing in the S&P 500 can be a valuable addition to a UK investor’s investment strategy, unlocking opportunities for potential wealth creation in the global markets.

FAQs

Can you invest in the S&P 500 in the UK?

Yes, investors in the UK can invest in the S&P 500. There are various ways to access the S&P 500, including investing in S&P 500 index funds, ETFs, or purchasing individual stocks of companies within the index. UK investors can use online brokerage platforms or financial institutions that offer access to US markets to invest in the S&P 500. It’s important to consider currency exchange rates, tax implications, and any regulatory requirements when investing in the S&P 500 from the UK.

What is the cheapest way to invest in the S&P 500?

The cheapest way to invest in the S&P 500 is typically through a low-cost index fund or exchange-traded fund (ETF) that tracks the S&P 500, such as the Vanguard S&P 500 ETF (VOO) or iShares Core S&P 500 ETF (IVV). It’s important to choose a fund with a low expense ratio and no or low trading fees, which can be found on cost-effective online brokerage platforms. Additionally, investing through a tax-efficient account like an ISA in the UK can further reduce costs associated with investing.

Can I invest in the S&P 500 on my own?

Yes, you can invest in the S&P 500 on your own by using an online brokerage platform that offers access to S&P 500 index funds or exchange-traded funds (ETFs). You simply need to open an account with the brokerage, deposit funds, and then purchase shares of an S&P 500 fund such as SPDR S&P 500 ETF Trust (SPY) or Vanguard S&P 500 ETF (VOO). This method allows for self-directed investing without the need for a financial advisor.

How to invest in the S&P 500 for beginners?

For beginners looking to invest in the S&P 500, the simplest approach is to use an online brokerage platform to purchase an S&P 500 index fund or exchange-traded fund (ETF), such as Vanguard S&P 500 ETF (VOO) or iShares Core S&P 500 ETF (IVV). Start by opening and funding a brokerage account, then select and buy shares of the chosen S&P 500 fund. Beginners should start with a small investment and gradually increase it as they gain more understanding of the market.

You may also like:

Will Fenton is the founder of Sterling Savvy. He is a personal finance expert and writes about trading, investing, budgeting, and other financial topics.

Along with his education in Economics & Finance, he has experience working in the financial services industry in London working for one of the UK’s leading financial companies, “a trustworthy and respected provider of news, education and market analysis for the everyday investor”.

View Profile

Advertiser Disclosure

We may receive compensation from our partners for placement of their products or services, which helps to maintain our site. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn’t influence our assessment of those products.