The S&P 500 is almost certainly something anybody with a passing interest in investing will have heard of. For the reasons discussed in this post, investing in this index of US Companies can be an excellent investment but how does a UK citizen go about investing in this US index?

UK residents are able to invest in the S&P 500. Simply set up an investment account or ISA on a reputable UK investing platform like Vanguard or Hargreaves Lansdown and purchase units of a fund that has the mandate of tracking the S&P 500 index (i.e. the 500 largest companies in the US).

The S&P 500 index contains many of the biggest companies in the world including Apple, Microsoft, Pfizer and PepsiCo and has returned an average of 10.8% historically. It is therefore a popular, low-effort investing choice.

How UK citizens can invest in the S&P 500

UK citizens are able to invest in the S&P 500 via purchasing an index fund on a reputable platform like Vanguard or Hargreaves Lansdown. The index fund should have the stated intention of tracking the S&P 500 index which is an index that tracks the performance of the 500 largest companies in the US.

So what are the specific steps to starting to invest in the S&P 500 in the UK?

1. Set up an account on Vanguard Investor or Hargreaves Lansdown. Both are great choices.
2. Make sure you set up an ‘ISA’ account on which you can contribute up to £20,000 per year and be shielded from tax.
3. Set up a direct debit within the platform to fund your account with a set amount of money that you can afford each month
4. Set up a monthly investing instruction to purchase units in an index fund which tracks the S&P 500.

If any of this is confusing, there are numerous guides and Youtube videos walking you through the process and the support staff on both platforms will be happy to help.

I have also written a simple guide on how to get started investing in Vanguard which can be read by clicking the below link:

Start investing in an ISA in the UK with Vanguard: A how to guide

For Vanguard, consider investing in the following funds to track the S&P 500:

1. S&P 500 UCITS ETF (VUSA) – S&P 500 only
2. U.S. Equity Index Fund – Accumulation – tracks American equities of which the S&P 500 makes up a major part.

For Hargreaves Lansdown, consider investing in the following funds to track the S&P 500:

1. UBS S&P 500 INDEX CLASS C – ACCUMULATION (GBP) – S&P 500 only
2. LEGAL & GENERAL US INDEX CLASS C – ACCUMULATION (GBP) – tracks the USA FTSE index, which is heavily overlapped with the S&P 500.

What is the S&P 500?

The S&P 500, otherwise known as the Standard & Poors 500 is a stock market index following the performance of the largest 500 publically-traded companies listed on the United States stock exchange. The S&P 500 is seen as an important indicator of the performance of the American stock market as a whole.

A stock market index is simply a subset of the wider stock market representing a particular segment of the global stock market, whether that be by location or by industry.

You may be familiar with the term ‘index funds’ which is simply a term used for passively managed funds that aim to track and follow the performance of a stock market index, without trying to beat it.

An actively managed fund, by comparison, is where a fund manager is hired and a fund created with the expressed intention of beating the performance of an index by carefully choosing stocks that are expected to outperform others.

So it’s not possible to invest directly into the S&P 500 because it is just a hypothetical index used by investors to compare the performance of the biggest stocks in the US market.

However, you can invest in “index funds’ which simply track this index by buying and selling companies to match the index as closely as possible.

Without delving into the complexities too much, the S&P 500 index is a market capitalisation weighted which just means the Companies with a larger market capitalisation (stock market total value) are weighted higher in the index than those with a smaller market cap.

For example, if you had 2 funds in an index, one worth 750,000 and the other worth 25,000, under the market-capitalisation weighting, the price of these funds would not be split equally but split 75/25.

Can UK residents invest in the S&P 500?

UK residents can invest in the S&P 500 despite it being an American index. There is nothing to prevent UK residents from investing in an index that isn’t in their home country. Due to its size and depth, the S&P 500 is a great indicator of the American and the worldwide stock market as a whole.

Generally speaking, novice investors tend to have a home country bias when they start investing. Those from the UK will invest in UK stocks, Americans will invest in American stocks and so forth simply because they are investing in what they know.

Although each of the 500 companies comprising the S&P 500 index is listed on the US stock exchange, they are still global in nature.

Consider Meta (previously Facebook), Apple, Microsoft, Pepsi, and Alphabet (Google) – these are not Companies that operate and make money solely in the US, they make money in pretty much every country on earth. So whilst it may appear a risk to invest only in US-listed stocks, it should be noted that these companies are global in nature.

Is the S&P 500 well diversified?

The S&P is well diversified in most aspects as your risk is spread over 500 Companies, across numerous industries, operating in numerous geographies. There is an argument that states that the S&P 500 is overweighted in the technology industry due to the prominence of the big tech companies.

Many investors choose to invest in just a few stocks of companies they trust or have a personal link to. This strategy is linked to the old saying “don’t put all your eggs in one basket”. If you have all your money in one company, no matter how reputable that Company is, and something happens, your investment portfolio value may tank.

For this reason, spreading your risk across multiple companies, in multiple industries across multiple geographies is generally considered a sound practice for a retail investor.

The S&P 500 contains 500 companies, across dozens of industries, operating in hundreds of countries so from these standpoints it is very well diversified. Many of the companies in this index (think Google, Microsoft and various banks) are often so pervasive in our society that the chance of them failing is tiny.

There are some ways in which the S&P 500 is not well diversified:

1. All companies are listed in the US. If this country was to change it’s stock market regulations, this could have a meaningful impact which could be avoided if you invested in other countries like the UK, Europe or Emerging markets.
2. Due to the prominence of big tech companies (also referred to as FAANG stocks) like Facebook, Apple, Amazon, Netflix and Google, a significant percentage of the index is comprised of technology focused companies.
3. All of the companies are, by definiton, high market-cap companies. Pure diversification would include companies with a small or medium market capitalisation.

Despite these points, the S&P 500 is generally considered fairly well diversified and will minimise the “all eggs in one basket” risk mentioned above.

Is the S&P 500 an index fund?

The S&P 500 itself isn’t an “index fund”. The S&P 500 is an index i.e. a grouping of stocks that make up a subset of the overall stock market for comparison purposes. There are many index funds that aim to track the S&P 500 so these can be invested in to follow the performance of the S&P 500.

There are many indexes, some of which like the FTSE100, FTSE250, S&P 500, Dow Jones, NASDAQ and Nikkei you may have heard of. It’s important to remember that an index is a hypothetical construct designed to assess the performance of a subset of the stock market such as a particular country or industry.

The easiest way to mimic the performance of these indexes is to use an index fund, which passively tracks the performance of the index itself. As this is comparatively simple to do, these funds tend to be very low-cost which allows users to avoid expensive fees.

Active managers, on the other hand, have to work hard and perform in-depth research to invest in companies that will beat the index, as such, this cost is passed onto investors into these funds via higher fees.

What is the best S&P 500 Index fund available in the UK?

The best S&P 500 index funds must be low-cost and track the index closely. Any S&P 500 funds with ongoing fees (referred to as TER or OCF) of 0.10% or less should be considered good options. How closely the fund tracks the index can be assessed by researching the funds ‘tracking error’ metric.

When looking for good S&P 500 index funds in the UK, there are a number of items you should consider:

1. Find a reputable, low-cost investing platform – Vanguard and Hargreaves Lansdown are good choices.
2. Find an index fund with low ongoing fees (TER or OCF %) – look for anything with fees lower than 0.10% of invested assets.
3. Find a fund which is generally held in good regard by other investors by a reputable investment company like Vanguard, Legal & General, UBS etc.
4. You want to make sure your fund is tracking the index (S&P 500) closely. As such, research ‘tracking error’ for prospective funds you may invest into.

Can I invest in the S&P 500 in an ISA?

You can invest in the S&P 500 using an Individual Savings Account (ISA). Simply set up an account on a reputable, low-cost investment platform like Hargreaves Lansdown or Vanguard and open an ISA account following the platform prompts. Once open, invest in an S&P 500 tracking fund within this account.

An ISA is simply a tax-advantaged wrapper used for saving and investing in the United Kingdom. This investment wrapper protects any investment income (dividends) or returns (capital growth or interest) from tax.

Unlike pensions, this investment account is very flexible as it allows investors to buy and sell investments quickly and withdraw cash from the account without incurring any penalties.

In the UK, individuals are able to contribute up to £20,000 per tax year to their ISAs. For more on common ISA questions, check out my post: Can I Pay Into Two ISAs In The Same Tax Year?

Can I invest in the S&P 500 in a self invested persion pension (SIPP)?

You can invest in the S&P 500 using a self-invested personal pension (SIPP). A SIPP can be opened on any reputable, low-cost platform like Vanguard or Hargreaves Lansdown and you can then invest for retirement within this pension wrapper via an S&P 500 tracker fund.

A self-invested personal pension (SIPP) is a pension wrapper offered in the United Kingdom and endorsed by the government which allows individuals to save and invest money for retirement.

The big advantage of investing in a SIPP is that it is both tax-advantaged (no tax on investment returns or income) and tax-benefitted (the government tops up your contributions by your prevailing tax rate, 20/40/45%) so you are effectively paying contributions out of your gross, pre-tax salary.

For more on common SIPP questions, have a look at my post: Can I Have a Joint Pension Plan (SIPP) With My Partner?

What is the UK equivalent of the S&P 500

The UK equivalent of the S&P 500 index is the FTSE 100 which is an index of the Financial Times Stock Exchange 100 largest stocks on the UK stock exchange by market capitalisation. This index is often considered representative of UK equities as the S&P 500 is indicative of US equities.

In the rest of this article, I’ve suggested that investing in the S&P 500 via an index fund is a good, well-diversified investment choice. So given the FTSE100 is the closest UK equivalent, would I suggest investing in this index via a tracker fund?

I wouldn’t recommend investing in the FTSE 100 on its own. Whilst investing in this index via a tracker fund may make up part of an overall portfolio, the UK equities market is comparatively small next to the US equities market and is much less representative of the global stock market as a whole.

Even on the surface level, the FTSE 100 has only 100 companies included in the index compared to the 500 making up the S&P 500 index. This alone decreases the level of diversification significantly.

Should a UK resident invest in the FTSE 100?

A UK resident can invest in the FTSE 100 as part of a wider portfolio. It is not advisable to invest in the FTSE 100 alone as this lacks diversification in terms of the number of companies and geographically. A regulatory change in the UK market could have a significant impact on your investments.

Should I invest in the S&P 500 or a global world equity tracker fund?

Whether to invest in the S&P 500 or a global equity tracker fund is down to preference. The global tracker is more thoroughly diversified but the S&P 500 has historically had higher returns. The decision comes down to if you are willing to accept a greater level of risk for higher potential returns.

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As always, please remember I am an Accountant, but not your Accountant. In this post (and all of my others) I share information and oftentimes give anecdotes about what has worked well for me. However, I do not know your personal financial situation and so do not offer individual financial advice. If you are unsure of a particular financial subject, please hire a qualified financial advisor to guide you.

This article has been written by Luke Girling, ACA – a qualified Accountant and personal finance enthusiast in the UK. Please visit my ‘About‘ page for more information. To verify my ACA credentials – please search for my name at the ICAEW member finder. Please comment below or contact me here to get in touch with questions or ideas for future posts.