How to buy US index funds? A complete analysis of the three major investment strategies for the S&P 500

Why is the S&P 500 Worth Paying Attention To?

The S&P 500 Index (S&P 500, SPX) represents the combined performance of 500 large publicly traded companies in the United States and is regarded as a barometer of the US stock market. Established in 1926, it initially included only 90 stocks, and now comprises 505 components.

This index covers all industries including Information Technology (31.7%), Financials (13.4%), Healthcare (11.2%), and more, featuring global giants like Apple, Nvidia, Microsoft, Amazon, Meta, and others. Historical data shows that the long-term annualized return of the S&P 500 is about 8-9%, and the investment returns over the past 30 years have outperformed 87% of mutual funds in the market.

Comparison of Three Investment Methods for the S&P 500

There are three main ways to invest in US index funds, each suitable for investors with different risk preferences:

ETF Index Funds: Suitable for conservative long-term investors
Futures Contracts: Suitable for experienced short-term traders
CFD Contracts: Suitable for active swing traders

Path 1: Index ETF Funds — A Long-term Stable Choice

What is an S&P 500 ETF?

An ETF (Exchange-Traded Fund) tracks the S&P 500 index, allowing investors to buy all the stocks in the index in one transaction without selecting individual stocks. This method offers low costs—typical expense ratios are around 0.09%, far lower than traditional stock commissions and mutual funds which are usually 1-2%.

Mainstream ETF Products Comparison

SPY (SPDR S&P 500 ETF Trust)

• Established: 1993
• Management Fee: Moderate
• Tracking Error: Small

IVV (Vanguard S&P 500 ETF)

• Established: 2000
• Management Fee: Lower
• Tracking Error: Small

VOO (Vanguard S&P 500 ETF)

• Established: 2010
• Management Fee: Lowest
• Tracking Error: Small

All three products have a minimum purchase amount of $10,000, with small tracking errors, effectively replicating the index performance. VOO has the lowest management fee; IVV and VOO are both Vanguard products, offering clear cost advantages.

Regional Investment Guide

Asia-Pacific Investors can participate through various channels:

• Taiwanese investors can buy Yuanta S&P 500 Fund (00646) via local brokers or directly purchase US stock ETFs through international brokers.
• Hong Kong investors can buy US ETFs like SPY via local or international brokers, or choose tracking ETFs like Navigator S&P 500 (3140.HK).
• Southeast Asian investors can access US S&P 500 ETFs via international online brokers.

Advantages of ETF Investment

ETFs are especially suitable for long-term holding strategies. First, they are diversified, covering over 500 large US companies, effectively spreading industry risks and capturing growth opportunities across sectors. Second, they offer stable historical returns, saving investors from intensive stock-picking research. Third, they provide attractive dividends—most ETFs yield annualized dividends of 1-4%, which can compound through reinvestment. For investors with stable funds seeking steady growth, this approach carries the lowest risk.

Note: If high dividend yield is a priority, S&P 500-related ETFs may not be the best choice, as their yield is relatively limited.

Path 2: Futures Contracts — Leveraged Short-term Opportunities

Characteristics of S&P 500 Futures

S&P 500 futures are derivative products based on the index, allowing investors to trade and speculate on future index prices. Futures support leverage and two-way trading—whether the market rises or falls, investors can establish positions to profit. This flexibility comes with increased risk, making it more suitable for experienced short-term traders.

Contract Types

Standard Contract (ES)
Traded on CME (Chicago Mercantile Exchange), suitable for institutions and seasoned investors.

Mini Contract (MES)
One-fifth the size of the standard contract, more suitable for individual investors and small institutions.

Futures Trading Advice

Non-US investors can trade via international futures brokers. Due to the high risk and complexity of futures trading, it is recommended that investors thoroughly learn market mechanisms, understand risk management, and even practice with simulated trading before engaging in real trades.

Path 3: CFD Contracts — Flexible Two-way Trading

How CFD Works

CFDs (Contracts for Difference) are similar to futures, being derivative products that track the underlying asset’s price. CFDs use margin trading, allowing investors to leverage gains and losses. This tool is especially suitable for swing traders and active investors, enabling flexible long and short positions.

Advantages and Risks of CFDs

Advantages:

• Can trade in both rising and falling markets
• Leverage amplifies gains and risks
• High trading flexibility

Risks:

• Leverage also magnifies losses
• Requires frequent risk management and position adjustments
• Not suitable for inexperienced traders

Through trading platforms, investors can access S&P 500 CFDs and futures. Platforms often offer demo accounts, allowing beginners to familiarize themselves with the interface and trading process in a risk-free environment.

How to Choose the Right Investment Method for You?

Investment Horizon is the primary factor:

• Over 2 years long-term holding: Choose ETFs. Spread out the time cost, pursue stable returns, and minimize risk.
• 3-12 months medium-term trading: Consider futures or CFDs, but only if you have basic trading knowledge.
• Weeks to months short-term trading: The leverage of futures and CFDs can be more effective, but require strong risk management skills.

Expected Returns also influence decision-making:

• ETF long-term annualized returns of 8-9% are relatively stable, with dividends further compounding returns.
• Futures and CFDs can pursue higher returns through leverage but come with higher risks.

Investor Type Self-Assessment:

• Conservative: Focus on ETFs, enjoy market dividends without frequent trading.
• Balanced: Primarily ETFs, with moderate allocation to futures or CFDs to enhance returns.
• Aggressive: Mainly futures and CFDs, leveraging and two-way trading to seek more opportunities.

Summary of Investment Recommendations

There is no absolute “best” way to invest in the S&P 500; only the “most suitable” one. The key is to clarify your investment goals, risk tolerance, and time horizon, then match with the appropriate investment tools.

Regardless of the method chosen, thorough pre-investment learning and risk awareness are essential. It is recommended that investors conduct detailed research on market rules and even practice with simulated trading before making significant decisions. Ultimately, how to buy US index funds depends on your financial situation and trading style.