What is an S&P 500 ETF and How to Buy It — Part 1

Choosing individual stocks can be difficult and intimidating for a beginner: what if you make a mistake with the company? There is a simpler way — invest in the entire US market through an ETF on the S&P 500 index. Let's figure out what it is and how it works.

What is the S&P 500

The S&P 500 is an index that tracks the stocks of about five hundred largest US companies: from tech giants to food producers and banks. It is commonly used to judge how the American market is feeling overall.

What is an ETF

An ETF is a fund that is traded on the exchange like a regular stock. The ETF on the S&P 500 is structured so that it replicates the composition of the index. By purchasing one share of such a fund, you effectively become a co-owner of all five hundred companies — in a small proportion.

Why is this popular with beginners

• Diversification out of the box. One tool — hundreds of companies, risk is spread out.
• No need to pick stocks. You invest in the market as a whole, rather than guessing the winner.
• Low entry threshold. No need to buy all the securities separately.

What are the risks

An ETF on the index does not eliminate market risk: if the entire market falls, so does the fund. It protects against the collapse of a single company but not against an overall downturn. This is a tool for the long term, not a way to get rich quick.

How to buy an ETF on the S&P 500

You can buy an ETF on the S&P 500 index online, through the "Exchange Broker" app — a broker with licenses from the Ministry of Finance of Tajikistan and access to the US market. There are other ETFs in the catalog if you want to create a portfolio of several funds. You can start with a small regular amount.

This material is for informational purposes only and is not an individual investment recommendation. Investment returns are not guaranteed, past results do not determine future ones.