The S&P 500: The Ideal Investment for the Busy Person

Many busy people do not want to spend the time and effort required to become proficient at picking individual stocks. Who wants to plow through annual reports and investment books and talk with their stock broker every other day? But they would like to participate in the long-term upward movement of the stock market. The ideal solution for such a person is to invest in a broad-market index like the S&P 500. With this conservative approach your only bet is on the long-term direction of the United States economy and the 500 largest publicly-traded companies that make up the S&P 500. When you own the S&P 500, you own a little piece of leading companies like General Electric, McDonald’s, Microsoft, Merck and other established companies.

To invest in the S&P 500 you simply buy a special type of mutual fund called an unmanaged index fund that holds all the stocks that comprise the S&P 500. With an index fund that tracts the S&P 500 you can forget about the day-to-day ups and downs of individual stocks.

Because an index fund does not rely on a manger to pick stocks (that's why it's called an unmanaged fund), the cost of owning most index funds is very low. You can buy most index funds without paying a sales charge and each year you will pay a small administrative fee to maintain your account. Another strong point is that you are guaranteed to have more than adequate diversification because you own a piece of 500 companies.

Another bonus is that you will receive dividends from the dividend-paying companies in the S&P 500. You may receive the dividends in cash or reinvest them to accumulate more shares. In addition you can set up an automatic purchase plan to buy shares at regular intervals. A low-fee index fund that tracks the S&P 500 is tailored for the long-term buy-and-hold investor.

Two of the lowest fee index funds that track the S&P 500 are the Fidelity Spartan 500 and the Vanguard 500 Index. To open an account call Fidelity Investments (800-343-3548) or The Vanguard Group (1-877-662-7447) or refer to the Fidelity or the Vanguard or web site.

Another easy way to own the S&P 500 is to buy the exchange traded fund (ETF) called the SPY. The SPY mirrors the S&P 500 and it trades like a stock so you buy and sell the SPY through a full-service or online broker and you will pay a commission for each transaction. Whether you own the SPY or an index fund is a matter of personal preference. Over the long term they will perform about the same.