Investing in the S&P 500, one of the world’s most renowned stock market indices, has long been a popular choice for investors seeking exposure to the US equities market. However, if you are based in Australia, you might be wondering how to gain access to this investment and what is the best approach to invest in the S&P 500 from Australia.
In this comprehensive guide, we will provide you with a step-by-step process for buying the S&P 500 from Australia. We will cover important aspects such as choosing a suitable S&P 500 ETF, offering tips for selecting an ETF broker, and more!
How to invest in the S&P 500 from Australia (Step-by-step guide)
1. Pick an ETF tracking the S&P 500
The S&P 500 measures the performance of 500 large-cap US companies, including companies such as Apple, Microsoft and Amazon. These companies span various sectors and represent the overall US equity market. As such, investing in the S&P 500 exposes you to a broad range of companies and can serve as a cornerstone of a diversified investment portfolio.
When it comes to investing in the S&P 500 from Australia, it will be costly and inefficient for individual investors to attempt to invest in each of these 500 companies separately. However, Exchange-Traded Funds (ETFs) offer a practical solution by providing a single investment vehicle representing the entire index’s performance. By investing in S&P 500 ETFs, Australian investors can effectively participate in the potential growth of the index and enjoy the benefits of diversification.
The following table presents the major S&P 500 ETFs accessible to Australian investors. This list was derived from the ETFs listed on the Australian Stock Exchange (ASX) and based on the morningstar ETF screener.
Biggest S&P 500 ETFs in Australia
|Annual fee (TER)
|Use of income
|Fund size (in AUD Billion)
|SPDR S&P 500 ETF Trust
|Vanguard S&P 500 UCITS ETF
|Invesco S&P 500 UCITS ETF
|iShares S&P 500 ETF
|iShares S&P 500 AUD Hedged ETF
*Each fund provider offers a variety of ETFs that track the S&P 500. We have mentioned a few of those that are listed on the ASX. However, we encourage you to visit the morningstar ETF screener, where you can explore and evaluate all the available ETF options.
Don’t worry if you are unfamiliar with what the “Replication method” and “Use of income” mean; we’ll explain them later in this guide. Now, let’s move to the second step on how to buy the S&P 500 from Australia.
2. Choose a good ETF broker
After selecting an ETF, the next step is to identify a reliable broker to let you invest in it. To do this, we’ll briefly summarize what each broker offers on their platforms.
*eToro offers ETFs from the same providers that track the S&P 500 but are listed on other exchanges. Therefore, we have marked it as “Yes” to indicate that the ETF family is available on eToro.
Disclaimer: eToro Service ARSN 637 489 466 Capital at risk. See PDS and TMD.
Other important factors to consider when selecting an ETF broker are the fees, minimum deposit requirements, and the range of available ETFs. Here is a summary of these factors for each broker:
|ETF Transaction Fees
|Number of ETFs
|Between 0.015% and 0.08% for ASX-listed ETFs.
|FINRA, SIPC, SEC, CFTC, IIROC, FCA, CBI, AFSL, SFC, SEBI, MAS, MNB
|Between 0.03% and 0.08% for AU stocks (minimum of AUD 3 per order)
|ASIC, FSA, FCA, SFC, MAS, FINMA, and DFSA
|0.025% per order (Min. AUD 6.49)
|SEC, FINRA, ASIC, HKSFC
|$0 (other fees apply)
|FCA, CySEC and ASIC
*Although the number of ETFs is not disclosed, there is a wide range of ASX, US and HK-listed ETFs.
3. Place a “Buy Order”
Once you have chosen a suitable ETF broker and funded your account, you are ready to place a “Buy Order” for the S&P 500 ETF. For this example, we will use Interactive Brokers. However, you can follow these steps to execute your purchase with any broker:
a) Search for the desired S&P 500 ETF
Use the search function or browse through the available ETFs to find the specific S&P 500 ETF you have selected. Refer to the ticker symbol to locate the ETF accurately (in our case, we searched for SPY).
You may come across instances where the broker offers multiple versions of the same ETF, denominated in different currencies such as USD, AUD or EUR. It is advisable to select the one that aligns with your account currency. For example, if your account currency is AUD, choosing an AUD-denominated ETF will help you avoid currency exchange fees.
b) Click on “Buy” or “Invest”
Usually, this tab is clear once you are on the ETF page, where you will find the chart and key information about the ETF.
c) Choose the order details
Now, you must choose the appropriate order type based on your preferences and trading strategy.
- Limit Order: It is set by default on IBKR. So you can set a specific price at which you are willing to buy the ETF. The trade will only be executed if the market price reaches or falls below your specified limit price.
- Market or Trader Order: This order executes the trade at the prevailing market price and provides immediate execution.
- Amount or Units: Specify the amount of money or the number of shares you wish to invest in the S&P 500 ETF.
d) Place the order
Finally, click “Submit But Order” to submit your order. At this point, the broker will process the transaction and attempt to execute the trade at the specified parameters.
What to look for in any ETF?
Not all ETFs are the same, and it’s important to consider several factors before deciding. Here are some factors to consider:
1. Fees (TER)
Different asset managers charge varying fees for their ETFs. For instance, providers like BlackRock (iShares) and Vanguard charge a small annual fee which is subtracted from the fund’s assets directly. As such, choosing an ETF with lower fees can result in higher returns on your investments. Ongoing charge (OCF) or total expense ratio (TER) are standard terms to describe this overall management fee.
2. Replication method
ETFs can employ two different replication methods:
- Physical replication, which involves purchasing the actual assets outlined in the index,
- Synthetic replication, where the fund manager utilizes financial derivatives to mirror index performance.
Additionally, you might encounter some ETFs that combine both approaches. Given the high liquidity of the S&P 500’s underlying companies, physical replication is often preferred due to its lower costs and reduced risks associated with derivatives.
3. Use of Income
ETFs also differ in how they handle income generated by the underlying companies.
- Accumulating ETFs reinvest dividends received from the companies included in the index, leading to a higher ETF price. You won’t need to pay transaction fees or trading costs for dividend reinvestment, as it is done automatically.
- Distributing ETFs, on the other hand, provide regular dividend payments directly to your brokerage account, requiring you to declare the received dividends.
Ultimately, deciding between accumulating and distributing ETFs depends on your circumstances and investment strategy. Assess your long-term goals and income requirements to select the best option for your needs. For instance, if you plan to hold your investment for a relatively long period without the need for regular income, an accumulating ETF may be more suitable. However, if you aim to earn regular income from your investment, a distributing ETF would be a better choice.
In Australia, investors are subject to taxes on dividends and capital gains. However, for long-term investors who hold their ETFs for more than 12 months, there is a benefit known as capital gains discounting, where the tax rate can be reduced by 50% for individuals. This is advantageous if you are investing in an accumulating ETF. Still, we encourage you to seek guidance from a tax advisor to receive personalized advice and ensure compliance with tax regulations.
Consider the overall fund size when selecting an ETF. Larger funds generally carry a lower risk of liquidation compared to smaller ones. In the event of liquidation, a fund sells its holdings, settles obligations, and distributes the remaining funds to investors.
Some ETFs employ hedging strategies using financial derivatives to mitigate the impact of currency fluctuations. While this protects against large currency swings, it also comes at an additional cost.
What is the S&P 500?
The S&P 500 is a widely recognized stock market index that tracks the performance of 500 large-cap U.S. companies.
Why would someone in Australia want to invest in the S&P 500?
Investing in the S&P 500 allows Australian investors to gain exposure to the US market and potentially benefit from its long-term growth.
Which brokers in Australia offer access to S&P 500 ETFs?
What is an Exchange Traded Fund (ETF)?
An Exchange Traded Fund (ETF) is a type of investment fund traded on stock exchanges. It is designed to track the performance of a specific index, commodity, sector, or asset class. If you invest in an S&P 500 ETF, you will gain exposure to the performance of over 500 different companies without the need to invest in each individual company separately. This provides a convenient and efficient way to diversify your investment across a wide range of holdings within the index.
Is Robinhood available in Australia?
Unfortunately, Robinhood is not available in Australia; however, you can check our top Robinhood alternatives for some insights.
What are CFDs? Should I invest in S&P500 CFDs?
Contracts for Difference (CFDs) are derivative financial instruments that allow traders to speculate on the price movements of an underlying asset without actually owning the asset itself. Investing in S&P 500 CFDs involves trading based on the price fluctuations of the S&P 500 index. To know more about it, read our article: CFDs vs Shares: Understand the Differences and check our list of the best CFD platforms in Australia.
What are the benefits of investing in the S&P 500?
Investing in the S&P 500 offers several key benefits. It provides broad market exposure for the 500 largest publicly traded companies in the US, offering diversification across different sectors and industries. Additionally, it is widely recognized as a benchmark for the US stock market and has a strong historical performance.