There are two main options for investing in the S&P 500

What is the S&P 500, exactly?

The S&P 500 is a stock market index made up of shares of 500 large, industry-leading U.S. companies. It is widely followed, and often considered a proxy for the overall health of the U.S. stock market. An index is a measure of its underlying stocks’ performance, so you cannot directly invest in the index itself.

Contrary to popular belief, the stocks forming the index are not the 500 biggest U.S. companies, but they are arguably some of the 500 most important companies: These stocks represent about 80% of the total U.S. stock market’s value.

The S&P 500 weights the stocks by market capitalization, or total market value (number of outstanding shares multiplied by current market price). The larger the company, the greater its influence on the index.

How to invest in the S&P 500 in four steps:

To invest in the S&P 500 you can buy stocks of the individual companies in the index, or invest in index funds or exchange-traded funds that replicate the index. In order to buy either, you'll need to open a brokerage account to purchase those investments from.

1. Open an investment account where you can purchase S&P 500 stocks or funds. It may be advantageous to consider what type of investment account you want to open, since some have significant tax benefits.

2. Fund your account. You'll need to decide how much to invest, and this will depend on your investment goals.

3. Choose your investments. Do you want to invest in individual stocks included in the S&P 500, or a fund that is representative of most of the index? Investing in an S&P 500 fund can instantly diversify your portfolio and is less risky. Here are some of the top-performing S&P 500 index funds.

4. Buy your investments. Follow the instructions within your brokerage account to purchase. Stocks are purchased at the share price, so if you have $200 to invest, and a stock's share price is $100 per share, you would be able to purchase two shares. Funds may have investment minimums, but they tend to be low. Funds also have expense ratios, fees charged based on how much money you have invested.

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