Photo of Eric R. Ebbert, CFP®, MBA, CEO Eric R. Ebbert, CFP®, MBA, CEO Dec 21, 2020

Those who are new to investing or wish to expand their knowledge of investing will have certainly come across the S&P 500 index at some point or another. However, you might not be familiar with what it is actually about and what makes up S&P index funds

S&P 500 index funds include mutual funds and exchange-traded funds (ETFs) that track the S&P 500 index. The S&P 500 index includes the market performance of roughly 500 of the largest businesses in the United States. In other words, the businesses tracked by the S&P 500 index make up the highest allocation of performance in the market.

What do investors need to know about the S&P 500 index?

First, it is important to note that an index is a measure of a group of stocks’ performance. You could take time to invest in each company’s shares in the index, but this would be an incredibly arduous task. Instead, you can invest in mutual funds or ETFs that track the performance of the index, essentially doing the work of investing in the companies under it for you.

Consider whether you prefer a mutual fund or ETF, and decide if you want your investments to be capital-weighted or equal-weighted. A capital-weighted investment is based on a company’s size in relation to other companies in the index. In short, the bigger the company, the more it counts. Equal-weighted investments are based on each company accounting for the same percentage in the index. The main difference between the two is that a capital-weighted investment has a greater opportunity for higher growth while an equal-weighted investment is more stable and less vulnerable to risk. 

Once you have decided how you want to invest, it is time to make your purchase. Look for funds that have a low expense ratio, which is how much you will pay in fees each year to manage the fund. The lower the fee, the more you will keep from any returns on your investment.

Talk to a ProVise CFP® professional about growing your wealth through investing

Investing plays a key role in the growth of wealth for many people. Whether your goal is to buy a new car or house or to save up for retirement, investing in the S&P 500 index could be the right path for you. However, deciding whether to invest and how much to invest can be difficult to figure out. At ProVise Management Group, our team can work with you to create a financial plan that includes a strategy for investing that can help you reach your savings goals.

At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about your financial plan? Contact ProVise today to schedule a complimentary consultation.