There are hundreds of great companies for investors in the UK. You can always buy shares at leading companies tracked by the FTSE100. But if you want to invest in companies based in the US, the S&P 500 is your best bet.
The Standard and Poor 500 tracks 500 of the biggest companies in the US. Historically, the S&P 500 provides a 10% annual return for investors. But you can make more if you buy individual shares but it’s also risky.
In light of that information, many investors in the UK prefer to buy Exchange Traded Funds. Below is how to invest in S&P 500 ETFs from the UK.
ETFs stand for Exchange Traded Funds. They allow you to own shares in multiple companies without buying individual stocks. Instead, you buy a share of an ETF. And your ETF manager invests your money in many companies.
As we mentioned, the S&P 500 tracks 500 leading companies in the US. As a result, investing in an S&P 500 ETF lets you own shares in these 500 companies. Are ETFs similar to mutual funds? No.
Mutual funds complete trades once per day. If you want to invest, you decide the amount and have your purchase completed at the end of a business day. By comparison, you can invest in ETFs at any time of the day. The shares fluctuate in price, though.
Active versus Passive ETFs
ETFs aren’t all created equal. Active ETFs hire portfolio managers to beat the S&P 500. Passive ETFs simply match the S&P 500. Naturally, active ETFs sound like the best solution. However, they are scarce and hard to access. That leaves many investors with the option of passive funds.
You’ve probably already heard about it by now. You can earn dividends by investing in ETFs. The money is paid in cash, often at the end of a year. Alternatively, you can compound this money to your capital to increase your long-terms profits.
Expense ratios refer to the annual fees you pay to an ETF for their services. Logically, choose a broker with a low expense ratio. Many of them have additional fees anyway, so you want to keep the costs close to zero as much as possible.
Open a Trading Account
Contrary to popular belief, there are tons of trading websites in the UK that support S&P 500 ETFs. Some of the sites offer commission-free accounts, or allow you to invest with as little as you have.
Choosing the right broker is important—it can make a difference between maximizing your profits and losing your money. In the UK, all investment trading platforms are regulated.
However, they have lower leverage than international sites, which is why some people opt to choose offshore brokers. Pick a good broker by looking at the following features:
- Trading tools
- Account limits and fees
- Tradable Assets
Although your goal is to trade through ETFs, consider choosing a broker that also supports individual stocks, options and cryptocurrencies. That way, you can diversify your portfolio. On the other hand, pay attention to a broker’s reputation. You want to invest at the right platforms.
Choose the Right S&P 500 ETF
Choosing an ETF has all to do with comparing tiny details. You want to look at the fees, limits, average interest rates and reputation. Every ETF has its benefits and disadvantages. So, before you commit to join one company, ensure you know what you get at different platforms.
Take the SPDR as an example. It’s the best UK S&P 500 ETF according to many investors. Its biggest benefits are its low minimum investing limit of £36 ($50) and ability to diversify your portfolio by industry: Technology, service, healthcare or finance, to name a few.
Still, to be clear, the SPDR S&P 500 ETF might not be your best ETF if you want to invest in all the companies tracked by the S&P 500. Instead, you could pick an ETF that tracks all 500 companies, say the Vanguard S&P 500.
Some ETFs cater to investors targeting small and medium-capped companies. The iShares Core is a great example. iShares Core small-cap ETF dips your money into a portfolio of small-cap companies tracked by the S&P 500. By contrast, the iShares Core Mid-cap ETF helps you invest in medium-cap companies.
Fund your Account
After you choose a brokerage account, add money to invest in your preferred ETF. Many trading platforms support popular banking options like Visa, MasterCard, PayPal, Skrill, EcoPayz and Bitcoin.
Deposit the minimum required or as much as you’re comfortable to invest. Then enter a trade. At the best sites, it takes a couple of minutes to invest in individual stocks, mutual or Exchange traded funds.
Note: There are not many benefits in joining multiple S&P 500 ETFs. They all track the same companies. However, take time to decide the kind of ETF you want to join. If you want to buy small-cap stocks, choose the right platform. If you’re after investing in all S&P 500 companies, pick the appropriate platform.
Should you Invest in an ETT?
ETFs have many benefits. And according to many experts, they are a great way for compounding wealth regardless of your capital. The biggest benefit of funds is that they spread your risk by allowing you to invest in many companies.
Some companies might underperform over time. But you could still make money from the stocks that perform well. Another benefit of ETFs is that they save you from relying on guesswork when it comes to investing.
When you buy shares in an S&P 500 ETF, you know you’re investing in America’s biggest companies. Historically, these companies have been soaring and making money for investors. So, unless there’s another financial crisis, there’s a high chance of making money.
Of course, keep in mind ETFs have their drawbacks. The annual return for many ETFs is 10%. But were you to invest in individual stocks, you would make 50%, 100% or 200% if the market were to move in your favor.