How to invest in the S&P 500 with little money
— -- Q: What's the least amount I can invest in the Standard & Poor's 500 index?
A: One of the biggest changes for individual investors is just how small they can be. You don't need much money, $200 or less, to invest to get started.
Just a few years ago, most mutual funds and brokerages required investors to bring a decent sum of money to the table just to get started. Minimum deposits of $500 if not $1,000 were pretty standard with even leading discount brokerages not long ago.
Investors with less money to start with face yet another hurdle: fees. Even if a brokerage charged just $15 for a trade, smaller investors could get chewed up in a hurry. Even a seemingly small $15 a trade commission can be pretty steep for an investor just looking to buy $50 or so of stock at a time.
Both of these hurdles to smaller investors, account minimums and commissions, continue to erode away. You'll just need to find a brokerage that offers accounts with no minimum balance that will allow you to invest in the S&P 500 with no or low trading fees.
You have several possibilities. If you're dead set on investing, literally, in the Standard & Poor's 500 one approach might be to open an account with a deep discount brokerage like TradeKing, ING Sharebuilder or Zecco and buy Vanguard's S&P 500 exchange-traded fund voo. Each of these low-cost brokerages allow investors to open accounts with no minimum deposit. You could then buy one share of the Vanguard S&P 500 exchange-traded fund for the current market price, currently about $60, plus a roughly $5 commission. You can own the S&P 500 for less than $70.
Keep in mind, with this approach you'll need to pay the commission each time you invest more money. The $5 a share commissions can add up over time. You will also need to pay the commission when you sell.
Another approach might be to sign up with a brokerage that has no account minimums and also offers free trading in an S&P 500 ETF. TD Ameritrade, for instance, has no account minimum. You can open an account and then buy and sell shares of the iShares S&P 500 ivv and pay no commission. The downside: the ETF has a higher per-share price of $130. Don't worry. You're still paying the same valuation for the S&P 500, it's just that the per share price is higher. With this technique, you have a higher entry price but won't have to worry about the ongoing commissions.
Other brokerages offer possible solutions, but have their own downsides. For instance, Scottrade offers an ETF that's like the S&P 500, called the Focus Morningstar Large Cap Index ETF flg, with a lower per-share price of $25 a share. However, Scottrade has a minimum deposit of $500. Similarly, Schwab offers an S&P 500-like ETF that trades for about $30 a share, but Schwab has an initial deposit of $1,000.
The bottom line is that if you have less than $200 to invest, then yes, you can buy into the S&P 500 or something very similar and still keep your costs very low. If any readers have any other suggestions, feel free to share them in the comments section below.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz