the S&P 500, or more accurately the Standard & Poor’s 500, is a stock index generally made up of 500 of the largest U.S. companies listed on the U.S. stock markets (it has some additional rules that make the list a little more selective). Most of the stocks in it, from Microsoft (NASDAQ: MSFT) to Apple (NASDAQ: AAPL) to Johnson and Johnson (NYSE: JNJ), are familiar names. If you want to invest in companies you know and place bets on many of America’s largest companies, buying shares in the S&P 500 is one way.
Many of the S&P 500’s shares are also expensive. A single part of Apple would cost you around $ 380. But the good news is that you don’t need a lot of money to invest in any of the big companies in the S&P 500, or even to invest in all of them.
In fact, if you can afford to buy a penny stock, you can now afford to own any company, or all companies, in this index. That’s how.
Fractional shares open the door for those with less cash
Today, a growing number of major brokerage firms allow you to buy fractional shares of a company instead of restricting you to buying only full shares. Fractional actions are exactly what they seem: fractions or parts of a complete action.
While investors have traditionally needed enough money to buy at least one full share before they can own a part of a company, fractional shares remove this barrier to entry. When you invest in fractional stocks, you can buy as little as 0.001 of a share (depending on the broker). Just specify what stock you want and the dollar amount to invest, and you can buy any part of a stock you can afford.
If you have $ 5 to invest, for example, and decide you want to buy Facebook (NASDAQ: FB)You could get around 0.022 of a share in this S&P 500 company, which is trading at just over $ 230 per share (as of July 25).
Where once you would have been relegated to penny stocks only if you had so little cash to invest, you can now own a small part of some of the largest companies in the country. And the percentage of profits (or losses) you will get will be the same as that of any other investor, no matter how many total (or partial) shares they own.
How to buy S&P 500 shares at penny prices
With fractional stocks, you could invest in one or more companies in the S&P 500 even if you only have a few dollars. But if you only have $ 5 or $ 10 to put on the market, you won’t be able to buy too many big name companies on the list, even if you are only buying .001 from a part of them.
But you do have a choice: You can buy fractional shares of exchange-traded funds (ETFs) that follow the S&P 500 index. ETFs trade as stocks, but expose you to an investment basket with a single purchase. Funds that track the S&P 500, for example, pool investors’ money to buy weighted shares of stocks in the index. So when you buy from an ETF like Vanguard S&P 500 ETF (NYSEMKT: VOO) or the SPDR S&P 500 ETF Trust (NYSEMKT: SPY)You get a very small ownership stake in all of the 500 companies on the list.
The Vanguard fund is priced at around $ 300 for a single ETF share, while the SPDR ETF is priced higher at around $ 320 per share (as of July 25). Other S&P ETFs are traded for a similar amount. At those prices, if you even have $ 1, you could still shop with a few brokers and get your share of 500 great American companies for the price of a few penny shares.
Should I buy S&P 500 shares?
While fractional stocks allow you to risk much less than if you had to pay the full price for an S&P 500 index fund (or for shares in S&P 500 companies), you are still risking with your money. It’s smart to research any equity you’re considering investing in carefully and make sure to create a diversified portfolio that gives exposure to companies of all sizes.