If you’re in Australia and wondering about the best way to invest in the S&P 500, you’re at the right place.
Investing in the S&P 500 from Australia has many benefits, including currency diversification and gaining exposure to the US stock market.
Whether you’re new to investing or experienced in the industry, this article provides a helpful guide on how you can tap into the profitable US economy by investing in their top 500 companies.
What is the S&P 500 Index Fund?
The S&P 500 index fund is an investment fund that aims to replicate the performance of the Standard & Poor’s 500 index, commonly known as the S&P 500 index.
The S&P 500 is an index that tracks the performance of the top 500 large capitalization stocks listed in stock exchanges in the US. These stocks are added to the index based on market capitalization, liquidity, sector representation, and other factors.
Which Companies Make Up the S&P 500?
The S&P 500 index comprises stocks from the 500 largest US companies by market capitalization. As of 15 Dec 2023, here are the top 10 companies in this list:
- Apple Inc. (AAPL)
- Microsoft Corp. (MSFT)
- Amazon (AMZN)
- Nvidia Corp. (NVDA)
- Alphabet Inc. (GOOGL)
- Meta Platforms Inc. (META)
- Tesla Inc. (TSLA)
- Berkshire Hathaway Inc. (BRK.B)
- Broadcom Inc. (AVGO)
- UnitedHealth Group Inc. (UNH)
Why Invest in the S&P 500 Index Fund from Australia?
Investing in the S&P 500 index fund is a strategy many Australian investors use to diversify their portfolios, gain exposure to the US stock market, and benefit from the historical performance of the S&P index.
Instead of risking investing in individual US companies, you can minimize that risk by investing in the S&P 500. The index has historically outperformed many asset classes in the US stock market. And since it contains the top companies in the US, investing in the S&P 500 gives you exposure to the potential growth of the US stock market.
Furthermore, the S&P 500 is denominated in US dollars and thus could serve as a hedge against fluctuations in the Australian dollar.
Ways to Invest in S&P 500 from Australia
Investing in the S&P 500 index in Australia can be done through various means. Here are some of them:
Exchange-Traded Funds
One of the most common ways to invest in the S&P 500 index is through exchange-traded funds (ETFs). In fact, to many Australian investors, ETFs are the best way to invest in the S&P 500 index.
Investing in the index fund through ETFs lowers your risk exposure and enables you to earn returns from the top 500 US companies, even with a little investment capital.
Many ETFs are listed on the Australian Securities Exchange (ASX), which tracks the S&P 500 index. Notable examples are iShares S&P 500 AUD Hedged ETF (IHVV), SPDR S&P 500 ETF Trust (SPY), BetaShares S&P 500 Equal Weight ETF (QUS), etc.
Investment in Individual Stocks
Another way you can invest in the S&P 500 index is to buy individual stocks. Some brokerage accounts allow Australian investors to directly purchase shares of companies listed on foreign exchanges, including those in the S&P 500 index.
Many stocks in the index produce stronger returns than the index. So, you can pick the top-performing stocks in the index instead of investing in the 500 stocks.
However, you must understand that this is a riskier way to invest, as the S&P 500 index provides a better cushion. That is, a poor performance in one of the stocks in the index will not have much effect on the overall performance of the index. But investing in individual stocks means poor performance in a couple of them will affect your overall return.
Managed Funds
You can invest in the S&P 500 index from Australia by pooling funds with other investors. Some Australian fund managers offer managed funds that specifically invest in the S&P 500 index and similar international index funds.
This is a good option for investors who don’t have the time and expertise to manage their investments. But you must make sure the investment goals of the fund managers you choose align with yours.
Managed funds have slightly different fee structures than ETFs, as they’re actively managed.
Also Read: Exchange-Traded Funds (ETFs) Features
How to Buy S&P 500 in Australia
Here’s a step-by-step process on how you can buy S&P 500 index ETF in Australia:
Open a Stock Investing Account
To buy the S&P 500 index in Australia, you must first open a brokerage account.
Choose a brokerage platform that offers you access to the investments you like. Some platforms allow you to invest in ETFs, managed funds, and individual stocks, both the ones listed on ASX and international stock exchanges.
Follow the instructions provided by your chosen brokerage platform to open an account. The process is usually simple – you provide your personal information, and the company verifies your identity, then your account is live.
Search for an S&P 500 ETF
Once your stock investing account is up, research the investment options that provide you exposure to the S&P 500 index. This may include ETFs, mutual funds, or individual stocks of the companies in the index.
For ETFs, compare the investments based on their historical performance, constituting shares and the expense ratio.
Fund Your Account
After carefully selecting the ETFs to invest in, fund your brokerage account with the amount you wish to invest. Most brokerage platforms support funding options, including bank transfers, debit cards, Apple Pay, and Google Pay.
Purchase Your ETF
Place an order for the ETF you want to buy. Specify the quantity you wish to purchase and the price you’re willing to buy it.
Monitor Your Investment
Once you’ve bought the stocks, keep track of their performance by consistently reviewing your brokerage account. Take note of changes in the value of the investment, check for dividend payments (if applicable), and be alert on any news or events that may affect the index’s performance.
What Australian ETF tracks the S&P 500 index?
Here are some of the Australian ETFs that track the S&P 500 index:
- BetaShares S&P 500 Equal Weight ETF (QUS)
- iShares Core S&P 500 ETF:L (IVV)
- SPDR S&P 500 ETF Trust: (SPY)
- ETFS S&P 500 High Yield Low Volatility ETF: (ZYUS)
- Vanguard S&P 500 ETF ($VOO)
What is the Australian version of the S&P 500?
The S&P/ASX 200 is the Australian version of the S&P 500. It comprises the 200 largest publicly listed companies on the ASX by market capitalization.
As with the S&P 500 and US investors, Australian investors use the S&P/ASX 200 to track the performance of the stock market and as a benchmark for the performance of their investment portfolios.
Also Read How to Invest in the Stock Market as a Beginner in Australia
Conclusion
You can invest in the S&P 500 from Australia through various means, including ETFs, mutual funds, direct investments in individual stocks, and even through robo-advisors. But it’s essential to do your due diligence to determine the most suitable investment option.
