How to invest in the S&P 500? A complete analysis of three US index fund investment strategies

What is the indicator of the US stock market? For many investors, the answer is the S&P 500 Index (S&P 500). This comprehensive index covers the 505 largest publicly traded companies in the United States. It not only reflects the overall trend of the US stock market but also becomes the preferred benchmark for investing in US index funds. So, how to buy US index funds? Which method should different investors choose? This article will provide a detailed analysis.

Why are investors optimistic about the S&P 500?

Fundamentals of the S&P 500 Index

The S&P 500 was established in 1926, initially including only 90 stocks, and has now expanded to 505. This US index fund comprises companies across all industries, including finance, energy, technology, healthcare, with information technology accounting for 31.7%, financials 13.4%, and healthcare 11.2%. The top ten constituents include global giants like Apple, Nvidia, Microsoft, and Amazon.

Using a market capitalization-weighted approach, the S&P 500 has long been regarded as a barometer of the US stock market. Data shows that over the past 30 years, the index’s annualized return exceeds 9%, outperforming 87% of mutual funds. Over time, the S&P 500 has demonstrated a clear upward trend, even after multiple market fluctuations, maintaining an overall positive direction.

Because of this, various investment tools have been developed around the S&P 500—including funds (ETFs) tracking the index, futures contracts, and Contracts for Difference (CFDs)—to meet different risk preferences and investment horizons.

How to buy US index funds? Three investment methods compared

Method 1: ETF Investment—A Steady Long-term Choice

What is an S&P 500 ETF

Exchange Traded Funds (ETFs) track the performance of the S&P 500 index, allowing investors to hold all the stocks in the index with a single purchase. ETFs are traded throughout the trading day on stock exchanges, offering high liquidity and relatively low entry barriers.

Cost advantages are significant

For example, SPY has a management fee of only 0.09%, far lower than traditional mutual funds’ 1-2% fees. IVV and VOO have even lower costs, making long-term holding more cost-effective.

Notable S&P 500 ETF products

• SPY (SPDR S&P 500 ETF Trust): Established in 1993, with moderate management fees and high tracking accuracy
• IVV (Vanguard S&P 500 ETF): Launched in 2000, with relatively low management fees
• VOO (Vanguard S&P 500 ETF): Founded in 2010, with the lowest management fee among the three, and an annual dividend yield of 1-2.5%

All three require a minimum purchase of $10,000, with very small tracking errors. The main difference lies in costs—VOO’s low fee makes it more competitive for long-term investors, while SPY and IVV’s quarterly dividends provide steady income.

Investor choices in different regions

Investors in Taiwan can purchase the Yuanta S&P 500 Fund (00646) through local brokers or directly buy US-listed ETFs like SPY, IVV, VOO via international brokers. Hong Kong investors can choose local ETFs such as the Navigator S&P 500 (3140.HK) or US-listed products like SPY. Malaysian investors can access US markets through international brokers like Interactive Brokers.

Core advantages of ETF investing

Choosing ETFs for US index fund investment is most suitable for long-term investors. This approach not only saves time on researching individual stocks but also diversifies risk across hundreds of companies. Coupled with dividend reinvestment and compound growth, an annual return of 8-9% can accumulate substantial wealth over time.

Note that while S&P 500 ETFs offer stable returns, their annual dividend yields of 1.5%-4% may not be ideal for investors seeking high dividend income.

Method 2: Futures Trading—Leverage Tools for Short-term Gains

How futures work

S&P 500 futures are derivatives based on the S&P 500 index, allowing investors to trade on future price movements. Unlike passive ETF tracking, futures support leverage and two-way trading, enabling investors to profit from both rising and falling prices.

Contract details

Standard S&P 500 futures contracts (symbol: ES) are traded on the Chicago Mercantile Exchange (CME), representing the full index value. Mini contracts (E-mini S&P 500 Futures, symbol: MES) are one-fifth of the standard size, making them more suitable for individual investors and small institutions.

Risks and rewards of futures trading

Futures allow investors to control larger positions with less capital, increasing short-term profit opportunities. However, leverage also amplifies risks—potentially leading to rapid gains or significant losses. Therefore, futures are more appropriate for experienced traders with strong risk management skills; beginners should avoid direct participation.

Investors outside the US can start trading through international brokers like Saxo Bank or Interactive Brokers. Fully understanding market mechanics and risk management is crucial before engaging.

Method 3: CFDs—Flexible Leverage Trading

Differences between CFDs and futures

Contracts for Difference (CFDs) are also derivatives that track the price movements of the S&P 500, supporting leverage and two-way trading. Compared to futures, CFDs are more flexible, with broader trading hours, but they are equally high-risk investment tools.

Main features of CFDs

• Can trade both rising and falling markets
• Leverage amplifies returns and risks
• Suitable for active traders seeking swing trading
• Small capital can establish large positions

Platforms like Mitrade offer user-friendly interfaces and comprehensive educational support, making them popular among beginners. Many platforms provide demo accounts for practice before real trading, helping investors familiarize themselves with trading processes and risk controls.

How should investors choose?

Long-term investors: Prefer ETFs

If your investment horizon is 2 years, 3 years, or longer, aiming for stable returns through diversified investments, S&P 500 ETFs are the best choice. The portfolio of over 500 companies covers various growth points of the US economy, and the historical annualized return of 8-9%, compounded over time, can generate significant wealth. With low-fee products like VOO and dividend income, long-term investors can grow their wealth without taking on high risks.

Short-term traders: Futures or CFDs

If you aim to profit from short-term volatility and possess strong market analysis and risk management skills, futures and CFDs offer greater flexibility. But remember—leverage is a double-edged sword; high returns come with high risks, and any mistake can lead to substantial losses.

Investment advice

Beginners should start with ETFs to build experience, then consider futures or CFDs once familiar with the market. Practicing with demo accounts is essential. Establishing proper stop-loss and take-profit strategies is crucial to avoid being swayed by short-term fluctuations.

Ultimately, how to buy US index funds depends on your investment goals, risk tolerance, and time commitment. Choosing the right method will help you navigate the US stock market more steadily and sustainably.