The S&P 500 ETF is an exchange-traded fund that tracks the performance of the well-known US stock index S&P 500. The S&P 500 is one of the most important indices worldwide and comprises the 500 largest listed US companies measured by market capitalization. The best-known representatives in the index include companies such as Apple, Microsoft, Amazon, Alphabet (Google), Meta (Facebook), Tesla and many more. For investors, an S&P 500 ETF is a comparatively simple way to invest in the US stock market and benefit from its long-term growth potential.
What is an ETF?
An ETF is an investment fund that is traded on the stock exchange like a share. In contrast to actively managed funds, ETFs are managed passively. This means that they do not try to beat the market, but to replicate it as closely as possible. An ETF on the S&P 500 therefore invests in the companies included in the index - either in full or through a representative selection - in order to track their performance as closely as possible.
Advantages of an S&P 500 ETF
A major advantage of the S&P 500 ETF is its broad diversification. Buying a single ETF gives you exposure to 500 different companies from a variety of industries, including technology, healthcare, financials, consumer discretionary, industrials and more. This diversification significantly reduces risk compared to individual stocks.
Another advantage is the cost structure. As ETFs are passively managed, the management fees are generally significantly lower than for actively managed funds. The total expense ratio (TER) for S&P 500 ETFs is often less than 0.1%, which means that only a very small proportion of the invested assets is spent on management fees each year.
ETFs also impress with their high liquidity. As they are traded on the stock exchange, they can be bought and sold at any time during trading hours - similar to shares.
Historical development and returns
The S&P 500 has proven to be an extremely high-yielding index in recent decades. Historically, the average annual return - including dividends - has been around 7-10% (adjusted for inflation). Although this index is also subject to fluctuations, particularly in times of crisis such as the 2008 financial crisis or the COVID-19 pandemic, it has always recovered in the long term and reached new highs.
An investment in an S&P 500 ETF is therefore often recommended as a "buy-and-hold" strategy, i.e. as a long-term investment over many years or even decades. Particularly in combination with a regular savings plan, the compound interest effect can result in enormous asset growth.
Popular S&P 500 ETFs
There are numerous providers offering ETFs on the S&P 500. Among the best known are
- iShares Core S&P 500 UCITS ETF (from BlackRock)
- Vanguard S&P 500 UCITS ETF
- SPDR S&P 500 ETF Trust (one of the oldest ETFs ever)
These ETFs differ mainly in their fee structure, replication method (full or synthetic) and currency hedging.
Conclusion
An S&P 500 ETF is an attractive way to invest in the US equity market with little effort and low costs. It is suitable for both beginners and experienced investors who want to build up long-term assets. Despite the advantages, however, you should always bear in mind that an ETF also involves risks - especially market risk. However, if you have a long investment horizon, invest regularly and can withstand short-term fluctuations, you can lay a solid foundation for your investment with an S&P 500 ETF.
