Investing in the S&P 500 can be a fantastic way to gain exposure to 500 of the largest and most established companies in the U.S., offering broad diversification and historical long-term growth. While you can't directly invest in the S&P 500 index itself, you can invest in Exchange Traded Funds (ETFs) or index mutual funds that are designed to track its performance. E*TRADE, a popular online brokerage, makes this process accessible and often commission-free for U.S.-listed ETFs.
Ready to embark on your investment journey with E*TRADE and the S&P 500? Let's dive in!
Understanding the S&P 500 and Why It's a Popular Investment
Before we get to the "how," let's quickly understand the "what" and "why."
What is the S&P 500? The S&P 500, or Standard & Poor's 500, is a stock market index that tracks the stock performance of approximately 500 of the largest publicly traded companies in the United States. It's considered a barometer for the overall health of the U.S. stock market because it represents a broad range of industries and roughly 80% of the total U.S. stock market's value. The index is weighted by market capitalization, meaning larger companies have a greater impact on its performance.
Why invest in the S&P 500?
Diversification: By investing in an S&P 500 ETF or index fund, you instantly gain exposure to hundreds of companies across various sectors, which helps reduce the risk associated with investing in individual stocks. If one company performs poorly, the impact on your overall investment is lessened due to the breadth of holdings.
Long-Term Growth Potential: Historically, the S&P 500 has demonstrated an impressive average annual return over the long term, making it an attractive option for building wealth over time. While past performance doesn't guarantee future results, its track record is compelling.
Simplicity: You don't need to research and select individual stocks. An S&P 500 fund does the heavy lifting of tracking the index for you.
Lower Costs (Generally): Index funds and ETFs tracking broad market indices like the S&P 500 typically have very low expense ratios, meaning fewer fees eat into your returns compared to actively managed funds.
Now, let's get down to the step-by-step guide on how to invest in the S&P 500 through E*TRADE!
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| How To Invest In S&p 500 Through Etrade |
Step 1: Get Started by Opening an E*TRADE Account
Alright, let's begin! Are you ready to take the first exciting step towards potentially growing your wealth? The very first thing you'll need to do is open an investment account with E*TRADE. Don't worry, it's a straightforward process designed to get you investing quickly.
Sub-heading: Choosing the Right Account Type
E*TRADE offers a variety of account types, each suited for different financial goals. For most individual investors looking to buy S&P 500 ETFs, a brokerage account is the most common and flexible option.
Individual Brokerage Account: This is a standard investment account for any general savings goal, whether it's for a new home, a car, or just building wealth. You can deposit funds, invest in various securities like ETFs, and withdraw money anytime without early withdrawal penalties.
Retirement Accounts (IRA - Traditional, Roth, Rollover): If your primary goal is to save for retirement, an IRA offers significant tax advantages.
Traditional IRA: Contributions may be tax-deductible, and earnings grow tax-deferred until withdrawal in retirement.
Roth IRA: Contributions are made with after-tax money, but qualified withdrawals in retirement are tax-free.
Rollover IRA: If you have an old 401(k) from a previous employer, you can roll it over into an E*TRADE IRA.
Other Accounts: E*TRADE also offers joint accounts, custodial accounts (for minors), and various business retirement plans. Choose the one that best fits your needs.
For the purpose of this guide, we'll focus on opening a standard individual brokerage account, as it's the most common starting point for investing in ETFs like those tracking the S&P 500.
Sub-heading: The Account Opening Process
Tip: Read mindfully — avoid distractions.
Visit the E*TRADE Website: Go to the official E*TRADE website (
us.etrade.com Click "Open an Account": You'll typically find a prominent button for this on the homepage.
Select Your Account Type: As discussed, choose the account that suits your needs.
Provide Personal Information: You'll be asked for standard details such as:
Your full name, address, and contact information.
Date of birth.
Social Security Number (SSN) or Taxpayer Identification Number (TIN).
Employment information.
Financial details (income, net worth, investment experience - this helps E*TRADE understand your risk profile).
Review and Agree to Terms: Carefully read through the terms and conditions, disclosures, and agreements.
Verify Your Identity: E*TRADE, like all financial institutions, is required to verify your identity. This usually involves uploading a government-issued ID (like a driver's license or passport) and sometimes a proof of address (like a utility bill or bank statement). This step ensures the security of your account.
Fund Your Account: Once your account is opened and verified, you'll need to deposit money. E*TRADE offers several ways to do this:
Electronic Funds Transfer (ACH): Link your bank account for easy transfers. This is usually the most common method.
Wire Transfer: For larger sums, a wire transfer can be faster.
Check Deposit: You can mail a check.
Transfer an Existing Account: If you have an account at another brokerage, you can initiate a transfer.
It's important to note that ETRADE generally has no fee or minimum investment amount to open an account, but mutual funds may have their own minimums.*
Step 2: Research S&P 500 Exchange Traded Funds (ETFs)
Now that your E*TRADE account is open and funded, it's time for the exciting part: finding the right S&P 500 ETF for your portfolio! Remember, you're not buying the S&P 500 directly, but rather an ETF that tracks its performance.
Sub-heading: What is an S&P 500 ETF?
An S&P 500 ETF is an investment fund that holds stocks of the companies included in the S&P 500 index. It trades on stock exchanges just like individual stocks. When you buy shares of an S&P 500 ETF, you are essentially buying a small piece of all the companies in the index. This provides instant diversification.
Sub-heading: Key S&P 500 ETFs Available on E*TRADE
E*TRADE provides access to a wide array of ETFs. Some of the most popular and highly-regarded ETFs that track the S&P 500 include:
SPDR S&P 500 ETF Trust (SPY): Often considered the original and largest S&P 500 ETF. It's highly liquid and widely traded.
iShares Core S&P 500 ETF (IVV): Another very popular and highly efficient ETF from BlackRock's iShares. It boasts a very low expense ratio.
Vanguard S&P 500 ETF (VOO): Vanguard is known for its low-cost index funds and ETFs. VOO is another excellent choice with a competitive expense ratio.
Sub-heading: Factors to Consider When Choosing an S&P 500 ETF
While all S&P 500 ETFs aim to track the same index, there are subtle differences that can impact your returns over time.
Expense Ratio: This is the annual fee expressed as a percentage of your investment that the fund charges for its management. For example, a 0.03% expense ratio means you pay $0.03 for every $100 invested per year. Lower is always better for index funds, as they are passively managed. The major S&P 500 ETFs typically have very low expense ratios (e.g., 0.03% - 0.09%). ETRADE offers $0 commission for online U.S.-listed stock and ETF trades, but the expense ratio is charged by the fund itself, not ETRADE.
Tracking Error: This measures how closely the ETF's performance tracks the underlying index. Ideally, you want a very low tracking error. The major S&P 500 ETFs generally have excellent tracking.
Liquidity: This refers to how easily you can buy and sell shares without significantly impacting the price. SPY, IVV, and VOO are all extremely liquid due to their popularity.
Assets Under Management (AUM): Larger AUM typically indicates a more established and stable fund.
Dividend Reinvestment Policy: Some ETFs allow for automatic dividend reinvestment, which means any dividends paid by the underlying companies are automatically used to buy more shares of the ETF, compounding your returns. This is often a feature you can set up within your E*TRADE account.
To research these ETFs on E*TRADE:
Tip: Absorb, don’t just glance.
Log in to your E*TRADE account.
Use the search bar to look up the ticker symbols (e.g., SPY, IVV, VOO).
Review the detailed information pages, which include performance charts, expense ratios, holdings, and news.
Step 3: Decide Your Investment Amount and Strategy
You've opened your account and identified potential ETFs. Now comes the crucial step of deciding how much you want to invest and how you'll invest it.
Sub-heading: How Much to Invest?
The amount you invest depends on your financial situation, goals, and risk tolerance.
Start Small: You don't need a fortune to begin. With ETRADE offering commission-free ETF trades, you can start with just the price of one share of an S&P 500 ETF. As of early July 2025, shares of SPY, IVV, and VOO typically trade in the range of $500-$650 per share. Some brokers also offer fractional shares, allowing you to invest a specific dollar amount rather than buying whole shares. Check if ETRADE supports fractional shares for these ETFs if you wish to invest less than a full share's price.
Dollar-Cost Averaging (DCA): This is a popular and highly recommended strategy, especially for beginners. Instead of investing a lump sum all at once, you invest a fixed amount of money at regular intervals (e.g., $100 every month, or $500 every quarter), regardless of the market price.
Benefits of DCA: It helps mitigate risk by averaging out your purchase price over time. You buy more shares when prices are low and fewer when prices are high, potentially leading to a lower average cost per share over the long run. It also takes the emotion out of investing.
Lump Sum Investing: If you have a large sum of money readily available, investing it all at once can sometimes lead to higher returns, especially in a generally rising market. However, it also carries the risk of investing at a market peak.
For most investors, especially those just starting out, dollar-cost averaging into an S&P 500 ETF is a sensible and effective strategy.
Sub-heading: Long-Term vs. Short-Term
Investing in the S&P 500 is generally considered a long-term strategy. The historical returns of the S&P 500 are based on decades of performance, smoothing out short-term market fluctuations. Trying to "time the market" (buying low and selling high in the short term) is notoriously difficult and often leads to lower returns.
Step 4: Place Your Order on E*TRADE
This is where you execute your investment decision! The process for buying an ETF on E*TRADE is similar to buying a stock.
QuickTip: A slow read reveals hidden insights.
Sub-heading: Navigating the E*TRADE Trading Platform
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Log In: Access your E*TRADE account.
Go to the Trading Section: Look for a "Trade" or "Invest" tab or button.
Enter the Ticker Symbol: In the order entry form, type the ticker symbol of the S&P 500 ETF you've chosen (e.g., SPY, IVV, or VOO).
Select Action: "Buy": Make sure you select "Buy" as your action.
Choose Order Type: This is an important decision.
Market Order: A market order executes immediately at the best available current market price. While simple, the price might fluctuate slightly between when you place the order and when it executes, especially in volatile markets. Generally not recommended for beginners due to potential price slippage.
Limit Order: A limit order allows you to specify the maximum price you're willing to pay per share. Your order will only execute if the ETF's price falls to or below your specified limit price. This gives you more control over the purchase price. This is often recommended for ETFs to ensure you don't overpay.
If using a limit order, you'll need to enter your desired limit price.
Other Order Types: E*TRADE offers other advanced order types (e.g., stop orders), but for a simple buy, market or limit orders are most common.
Specify Quantity: Enter the number of shares you wish to buy. If E*TRADE supports fractional shares for the specific ETF, you might also have the option to enter a dollar amount.
Select Time in Force: This determines how long your order remains active.
Day Order: The order is active only for the current trading day. If it doesn't execute by market close, it expires.
Good 'Til Canceled (GTC): The order remains active until it's executed or you cancel it. This is useful for limit orders where you're willing to wait for a specific price.
Review and Confirm: Always review all the details of your order (ticker, buy/sell, order type, quantity, price, time in force) before confirming. E*TRADE will show you an estimated cost.
Place Order: Click the "Place Order" or "Confirm Trade" button.
Once placed, you'll receive a confirmation that your order has been received. If it's a market order, it will usually execute almost instantly. If it's a limit order, it will remain pending until the price meets your criteria.
Step 5: Monitor Your Investment and Reinvest Dividends
Congratulations! You've successfully invested in the S&P 500 through E*TRADE. Now, your role shifts to monitoring and managing your investment.
Sub-heading: Keeping an Eye on Your Portfolio
E*TRADE Portfolio View: Log in to your E*TRADE account regularly to view your portfolio's performance. You can see your current holdings, their market value, and your overall gains or losses.
Performance Tracking: E*TRADE provides tools and charts to track the historical performance of your investments. Don't obsess over daily fluctuations, especially for a long-term S&P 500 investment. Focus on the broader trends.
News and Research: While you're investing in an index, staying generally informed about market news and economic trends can be beneficial. E*TRADE provides research tools and news feeds.
Sub-heading: Reinvesting Dividends
S&P 500 ETFs often pay out dividends from the underlying companies. These dividends are typically paid quarterly. You have a choice:
Receive Cash: The dividends can be deposited as cash into your E*TRADE brokerage account.
Reinvest Dividends: This is highly recommended for long-term growth. You can set up your E*TRADE account to automatically reinvest any dividends received back into buying more shares (or fractional shares) of the same ETF. This leverages the power of compounding, as your dividends earn more dividends over time.
To set up dividend reinvestment on E*TRADE:
Navigate to your account settings or portfolio management section.
Look for "Dividend Reinvestment Plan (DRIP)" or similar options.
Select the S&P 500 ETF and choose to reinvest dividends.
Step 6: Understand Costs and Tax Implications
While E*TRADE offers commission-free ETF trades, there are still some costs and tax considerations to be aware of.
QuickTip: Slow scrolling helps comprehension.
Sub-heading: Understanding Costs
Expense Ratio: As discussed, this is the ongoing annual fee charged by the ETF itself (not E*TRADE). It's a small percentage but can add up over decades.
Bid-Ask Spread: When you buy or sell an ETF, there's a slight difference between the "bid" price (what buyers are willing to pay) and the "ask" price (what sellers are willing to accept). This is a minor cost of trading.
Commissions (Generally $0 for US-listed ETFs on E*TRADE): E*TRADE generally charges $0 commission for online U.S.-listed stock, ETF, and mutual fund trades. However, always verify the latest fee schedule, as policies can change, and exclusions may apply (e.g., OTC securities, foreign stocks).
Sub-heading: Tax Implications of S&P 500 ETF Investing
Dividends: Dividends you receive from S&P 500 ETFs are considered income and are taxable in the year they are received, whether you take them as cash or reinvest them. They are typically taxed as qualified dividends (at lower long-term capital gains rates) or ordinary income, depending on how long you've held the shares.
Capital Gains: When you sell your S&P 500 ETF shares for a profit, you incur a capital gain.
Short-Term Capital Gains: If you hold the ETF for one year or less before selling, the profits are taxed at your ordinary income tax rate.
Long-Term Capital Gains: If you hold the ETF for more than one year before selling, the profits are taxed at a lower, more favorable long-term capital gains tax rate. This is another reason why S&P 500 investing is best suited for the long term.
Tax-Advantaged Accounts: Investing in an S&P 500 ETF within a retirement account (like an IRA) can offer significant tax benefits (tax-deferred growth or tax-free withdrawals in retirement), which can greatly enhance your long-term returns. Consult with a tax advisor for personalized advice.
Step 7: Rebalance and Review Periodically
While S&P 500 ETFs are largely "set and forget," it's good practice to periodically review your overall portfolio and rebalance if necessary.
Sub-heading: Why Rebalance?
If you hold other investments besides just an S&P 500 ETF, their performance relative to the S&P 500 may shift your portfolio's asset allocation away from your target. Rebalancing involves selling some of the assets that have grown significantly and buying more of those that have lagged, bringing your portfolio back to your desired asset allocation.
For example, if you aimed for 80% S&P 500 ETF and 20% bonds, but strong S&P 500 performance makes it 85% of your portfolio, you might sell a small portion of your S&P 500 ETF and buy more bonds to restore your 80/20 balance.
Sub-heading: When to Review?
A common practice is to review your portfolio annually or semi-annually. You might also consider rebalancing if an asset class drifts significantly (e.g., 5-10%) from its target allocation.
Related FAQ Questions
Here are 10 common questions related to investing in the S&P 500 through E*TRADE:
How to choose between SPY, IVV, and VOO on E*TRADE?
Answer: All three are excellent choices tracking the S&P 500. They have extremely low expense ratios and strong liquidity. The differences are minimal. IVV and VOO often have slightly lower expense ratios than SPY, but SPY is the most heavily traded. Look at the specific expense ratio and any minor differences in tracking error if you want to be extremely precise, but for most investors, any of these will suffice.
How to find S&P 500 index mutual funds on E*TRADE?
Answer: While ETFs are very popular, ETRADE also offers mutual funds. Go to the "Mutual Funds" section on ETRADE, and search for funds that specifically state they track the S&P 500 index. Be aware that mutual funds have slightly different trading mechanisms (only traded once a day after market close) and sometimes higher minimum investment requirements compared to ETFs.
How to set up automatic investing for S&P 500 ETFs on E*TRADE?
Answer: ETRADE allows for recurring deposits into your account. Once funds are in your account, you would then manually place buy orders for the ETF, or you could explore ETRADE's automated investing options like Core Portfolios, which can manage a diversified portfolio for you (including S&P 500 exposure) for an advisory fee. Direct automatic ETF purchases are typically not as straightforward as recurring mutual fund investments.
How to check the performance of my S&P 500 ETF on E*TRADE?
Answer: Log in to your E*TRADE account and navigate to your "Portfolio" or "Holdings" section. You'll see real-time market value, cost basis, and gain/loss information for your ETF. You can also click on the ETF's ticker symbol for more detailed charts and performance data.
How to understand the fees associated with S&P 500 ETFs on E*TRADE?
Answer: The primary fee for S&P 500 ETFs is the expense ratio, which is charged by the fund provider and is deducted from the fund's assets (you don't see it as a separate bill). ETRADE generally offers $0 commission for online U.S.-listed ETF trades. Always check the ETF's prospectus for its expense ratio and ETRADE's commission schedule for any potential exclusions.
How to minimize taxes when investing in S&P 500 ETFs?
Answer: The best way to minimize taxes is to invest in S&P 500 ETFs within tax-advantaged accounts like a Roth IRA or Traditional IRA, where earnings grow tax-free or tax-deferred. For taxable brokerage accounts, hold the ETF for more than one year to qualify for lower long-term capital gains tax rates when you sell.
How to diversify beyond the S&P 500 using E*TRADE?
Answer: While the S&P 500 offers broad U.S. large-cap diversification, you can further diversify your portfolio on E*TRADE by adding:
International ETFs: To gain exposure to global markets.
Mid-cap or Small-cap ETFs: To include companies of different sizes.
Bond ETFs: To add fixed-income exposure and reduce volatility.
Other asset classes: Depending on your risk tolerance and goals.
How to sell an S&P 500 ETF on E*TRADE?
Answer: Similar to buying, go to the "Trade" section, enter the ETF's ticker symbol, select "Sell" as the action, choose your order type (limit order is often recommended for selling to ensure your desired price), specify the quantity, and then review and confirm your order.
How to contact E*TRADE customer support for investing questions?
Answer: E*TRADE offers various customer support channels. You can usually find their contact information on their website, typically under a "Contact Us" or "Support" section. This usually includes phone numbers, online chat, and email support. Their main phone number is 800-387-2331.
How to learn more about investing in general on E*TRADE?
Answer: E*TRADE provides extensive educational resources on its platform. Look for sections like "Knowledge," "Education," or "Insights." They offer articles, videos, webinars, and tools covering various investment topics, market analysis, and how to use their platform effectively.
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