Here's the Smartest Way to Invest in the S&P 500 in May

So you want to invest in the S&P 500 (^GSPC -0.56%). That's a smart thing to do, as it can help you build a hefty nest egg for retirement over many years. Even superinvestor Warren Buffett has recommended investing in the S&P 500, and his will directs that much of the money he leaves his wife be parked in the S&P 500.

You may be wondering, though, about what the smartest way to invest in the S&P 500 is. Here are some options.

Image source: Getty Images.

Meet the S&P 500

First off, it's important to understand that the S&P 500 index is a grouping of 500 of America's biggest companies. Together, they make up about 80% of the entire U.S. stock market's value, even though there are thousands of publicly traded U.S. companies.

Here are the recent top 10 holdings in the S&P 500:

Source: Slickcharts.com.

The index is weighted by market capitalization, meaning the biggest companies' stock price movements will have outsized influence on the index. Remember that there are about 491 other companies in the index, beyond the ones above.

How has the S&P 500 performed?

The S&P 500 has long been a solid grower -- and one that has performed better than most mutual funds actively managed by financial professionals, too. According to the folks at S&P Dow Jones Indices, the S&P 500 index outperformed a whopping 90% of managed large-cap mutual funds over the past 15 years.

The table below shows how the S&P 500 index has grown year by year, since 2007:

Source: Slickcharts.com. Returns reflect reinvested dividends.
*Year to date as of May 2, 2025.

Here are the index's average annual gains:

Source: S&P Global, as of May 1, 2025.

How to invest in the S&P 500

So, how do you invest in the index? Here are some ideas:

The worst way: The worst way would probably be buying shares of each of the 500 stocks independently. It would be a massive chore, and you'd have to keep buying and selling frequently to adjust for fluctuating weightings of companies in the index. And since the index occasionally adds and drops companies, you'd have to stay on top of that, too. Hard pass!

The best way: The best way is simply to invest in a low-fee S&P 500 index fund. There are many, and ones in an exchange-traded fund (ETF) form are arguably the simplest. Consider, for example, the Vanguard S&P 500 ETF (VOO -0.59%). It has an ultra-low expense ratio (annual fee) of 0.03%, costing you $3 per $10,000 per year. The SPDR S&P 500 ETF Trust (SPY -0.60%) and iShares Core S&P 500 ETF (IVV -0.60%) are two other solid ETFs to consider.

You might also be wondering whether to jump in all at once or gradually. That decision is up to you. The market has been quite volatile lately, due in part to worries about tariffs and the chance of a recession.

If you have a large sum to invest for a long time, you might go ahead and plunk it all in the S&P 500 if you're comfortable doing so -- that is, if you're pretty sure the American economy will recover after any big pullback. Or, if you're a bit skittish, consider investing in it incrementally, perhaps every few months.

Most folks won't have a big lump sum to invest. If that's you, you might just start building a position in the S&P 500 over time, investing money as it becomes available. If you do so according to a certain schedule, such as $1,000 per month, you'll be dollar-cost averaging, which is a fine way to invest.

Do remember, though, that only money you won't need for at least five, if not 10, years should go into the stock market. You don't want to have to sell shares for a down payment on a home right after the market has swooned.