How to invest in the S&P 500 on eToro

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 image below shows some of the S&P 500 ETFs available in eToro (in case you want to consult all the available S&P 500 ETFs available to Europeans – some may not be on eToro – please go to justETF.com):

To help you filter all the available choices, we have selected these ETFs:

Please keep in mind that the same ETF can be traded in different exchanges and in different currencies. For example, the iShares Core S&P 500 UCITS ETF is traded on the XETRA (“.DE”), and the London Stock Exchange (“.L”), among others. You can check that in the eToro trading platform:

As you can see, the ETF traded on “.DE” is quoted in EUR, whereas the one traded on the “.L” is quoted in GBX.

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:

• Click “Trade”: After clicking trade, all you need to do is choose the amount you wish to invest ($10 in our case). Make sure to only use “x1” leverage. If you use more leverage, you will be investing in a derivative product (a CFD), with higher risk, fees, and not owning the underlying product

• Click “Buy”: And that’s it! You will receive a pop-up stating “order filled”, which means you are invested in the S&P 500!

eToro offers commission-free trading in ETFs (and stocks – other fees apply) and has a modern and easy to use platform. You can place your trade both on your PC or through eToro’s mobile app.

One thing to note is that some of the S&P 500 ETFs offered on eToro are US ETFs (not available in Europe), and for that reason, they are offered as CFDs (just to be clear: not the case with SXR8). You need to ensure that you are buying the real product (not CFD), since CFDs are different instruments, with other fees, and no asset ownership (you are not the ETF beneficial owner).

Check the example mentioned below of VOO, which you should avoid since it is offered through a CFD:

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

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

• Conversion fee: apply to non-USD deposits and withdrawals;
• Commission fee: When you invest in stocks, a fee of $1 or $2 may apply, depending on the stock exchange;
• Spread fee: a markup added by eToro to the market spread of certain financial instruments;
• Withdrawal fee: all withdrawals are subject to a $5 fee;
• Inactivity fee: charged after 12 months with no login activity.

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. The ETFs presented 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. The SXR8 stands out due to its competitive management fees and being listed on multiple exchanges in different currencies.

2. Open an account and deposit money into eToro: 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!