How to invest in the S&P 500 on Interactive Brokers

Pick an ETF tracking the S&P 500

It is impossible to directly buy the S&P 500 index. However, you can invest in it through an instrument replicating every movement, like an Exchange-Traded Fund (ETF).

The table below shows four of the S&P 500 ETFs available in IBKR (in case you want to consult all the available S&P 500 ETFs available to Europeans (not applicable to US users) – some may not be on IBKR – please go to justETF.com). We believe this list is enough for you to consider:

We would recommend one of the first two (iShares or Vanguard) for these reasons:

1. Both present a total expense ratio (TER) of 0.07%, which is considered very low. Just to give an idea, €100 invested in any of those ETFs would only cost you 7 cents per annum;
2. The replication method is “Physical,” meaning that you are investing in the underlying assets. When it is “synthetic”, it means that the ETF provider is using derivatives (exotic financial instruments) with inherent risks;
3. These two are the biggest ETFs by asset under management (AUM), meaning that they are extremely unlikely to be closed down;

Still, if you want to explore more S&P 500 ETFs, go to the Interactive Brokers search bar and write “S&P 500”:

Please keep in mind that the same ETF can be traded in different exchanges and in different currencies. For example, the Vanguard S&P 500 UCITS ETF is traded on the Euronext Amsterdam (“AEB”), the London Stock Exchange (“LSEETF”), and the SIX Swiss Exchange:

The ETF traded on “AEB” is quoted in EUR, whereas the one traded on the “LSEETF” is quoted in GBP. This means that if you are a European-based investor, you should go for the EUR version. Why? Because you will not be charged unnecessary currency conversion fees. The same can be said for a UK-based investor by choosing the GBP version.

Place a “Buy Order”

So, let’s say you have decided to invest in iShares Core S&P 500 UCITS ETF (SXR8) – the process would be the same for the other ETFs.

• Search for the chosen ETF using the ticker symbol:

• Select the ETF, and a new window will pop up. Now, press “Buy”:

• Trading window

A new window will appear on the right side of your screen with all the details you need to fulfil: the order type (limit price in this case) and the quantity (number of shares) you want to buy:

We recommend setting a limit price in the order type to make sure you will not invest more than expected. Let’s look at the image again. The ETF is trading at €543.02. If you set a limit order of €542.50, you are guaranteed to only invest that amount (if the ETF goes back to that price).

On the other hand, if you give a market order, the purchasing price can be higher than the €543.02. It will buy at the best possible price when you confirm your order.

• Click “Preview”: All the details will appear (including the costs), and you are ready to trade by selecting “Submit Buy Order”.

And that’s it! You are invested in the S&P 500!

All the fees when buying an S&P 500 ETF on IBKR

By purchasing an S&P 500 ETF, you will incur several fees. According to IBKR fees page, these would be the charges:

• Trading commission: You will be charged 0.05% of the trade value with a minimum and maximum commission of €1.25 and €29, respectively (in the Tiered pricing plan);
• Currency conversion fee: a 0.002% fee of the total trade value (with a minimum of $2) will apply if you invest in an ETF in a currency different from your account currency.

What to look for in any ETF?

Not all ETFs are created equal. Different asset managers provide different ETFs tracking the same indices (like the S&P 500). The main differences are:

1. Fees (TER)

Asset managers like BlackRock (iShares) or Vanguard do not offer ETFs for free as they incur costs as well. Throughout the year, a small fee is subtracted from the fund’s assets. A lower fee will mean lower costs for you and, consequently, higher returns on our investments. Asset managers often list the overall cost of the fund. Ongoing charge (OCF) or total expense ratio (TER) are standard terms for this overall management fee.

Using the iShares Core S&P 500 UCITS ETF (SXR8) as an example, you can check its TER of 0.07% in the factsheet:

2. Replication method

It can be done in two ways:

• Physical replication ETFs means the ETF will try to buy the underlying assets laid out in the index.
• Synthetic replication ETFs means that the ETF uses financial derivatives to replicate the performance of the index.

The underlying companies comprising the S&P 500 are very liquid, and thus physical replication is preferred as it does not incur any additional costs or risks related to derivatives. Using the same ETF, you can see its methodology as “Physical Replication”:

3. Use of Income

Apart from their product structure, the ETFs also distinguish between themselves in the following terms:

• Accumulating ETFs where the ETF reinvests the dividends it receives from the companies included in the index that decide to make that distribution. This will dictate a higher price for the ETF when compared to an identical distributing ETF, and, in some countries, it is tax advantageous because since the dividends are kept inside the ETF, you are not required to declare that amount;
• Distributing ETFs gives you on a regular basis (usually quarterly) the dividends that companies distribute. So, you will receive that amount directly in your brokerage account. Here, you will have to declare the dividends received.

Which one is better? There is no “correct” answer. It all comes down to your preferences. Do you plan to withdraw your investment in a 20-year time horizon? Maybe an accumulating ETF does a better job. Do you want to earn some regular income? Well, in that case, a distributing ETF will be the most appropriate choice.

The SXR8 is “Accumulating”:

4. Size

The overall fund size should also be taken into consideration. The size of an ETF can impact the likelihood of fund liquidation. Smaller funds generally run a higher risk of being liquidated than larger funds. In such a case, the fund will sell all its holdings, settle obligations and distribute the remainder to the fund holders.

The SXR8 has a net asset value of $96,973.98 million:

5. Hedging

ETFs can use financial derivatives to protect against currency fluctuations. This comes at an additional cost but might protect you against large currency swings. Our top 4 ETFs are all “unhedged” since we believe that over the long-term, currency fluctuations offset each other over time.

Bottom line

To sum it up, here’s what you need to do:

1. Pick an ETF tracking the S&P 500: Find an ETF tracking that index.

2. Open an account and deposit money into Interactive Brokers: After deciding which trading platform to use, you must go through the account opening process and deposit money.

3. Send a buy order for the picked ETF: That’s the easiest part (the process is intuitive)! After having your brokerage account and the name of the ETF that you want to buy, you just have to place a trade!

We hope that this post addressed some of your concerns. Make sure to do your own research to find out the best investing strategy for you!

Other resources

• Check our Youtube channel! You will find step-by-step guides of how to invest in the S&P 500 on different brokers, as well as other educational videos about investing and investment platforms.
• Explore our tools: Check our comparison tool, reviews, BrokerMatch, and others.