An easy pill to swallow

My pick for 2026 is healthcare. Last year, it jumped 12.4%. Healthcare demand isn’t tied directly to the economic cycle the way other sectors are. For example, consumer discretionary or industrials are much more dependent on how well the broader US economy’s doing. But when it comes to medicine, people still need care regardless of the economic backdrop.

Yet it’s not just a defensive pick for 2026. The sector’s seeing large-scale breakthroughs that could really boost related stocks. A big one I’m thinking of is the rise of GLP-1 obesity and diabetes drugs. Another one is making use of AI for faster and more accurate drug discovery and diagnostics.

Finally, I think the valuation’s attractive. The largest healthcare sector ETF has a price-to-earnings ratio of 26.49. This contrasts with the broader S&P 500 average of 31.28. So by thinking about where the best value is right now, healthcare again ranks highly.

Of course, this is just my view. The sector might not be the best in the index if the AI build-out continues. If investor optimism remains high, communication services (including Meta and Alphabet) could steal the show. Or if interest rates fall faster than anticipated, the real estate sector and related US stocks could see large investor interest.

Specific targets

It’s possible to buy a sector tracker and invest passively. There’s nothing wrong with this, but I think some individual shares look particularly attractive. Eli Lilly‘s (NYSE:LLY) a good example here.

The stock’s surged 39% over the last year, fuelled by demand in GLP-1 products such as Mounjaro and Zepbound. Revenue in Q3 increased 54% versus the same period last year to $17.6bn, with these drugs specifically called out in driving this. Further, with the potential for much more widespread adoption, some of the share price increase is based on the future revenue potential.

Beyond obesity therapies, Lilly has an expanding pipeline in oncology and other therapeutic areas. Another appeal of owning the stock is the diversification of revenue. It’s a broad-based healthcare company, so if the sector as a whole does well, Eli Lilly stock should mirror the performance.

In terms of risks, there’s growing pressure from US regulators to lower drug costs. This could impact profit margins going forward for the company.

Even with this concern, I think it’s a stock for investors to consider, as a way to get exposure to the sector.

The post Prediction: this S&P 500 sector could produce the best returns in 2026 appeared first on The Motley Fool UK.

In the past couple of years, the company’s upwards trajectory was given a turbo-boost by its blockbuster GLP-1 drugs Mounjaro and Zepbound. The latter was approved late last year specifically for weight loss, which is a market that is expected to drive massive sales long into the future.

Today (30 October), however, the Eli Lilly share price slumped 13% after the company’s third-quarter results disappointed Wall Street. This rare stumble leaves me wondering if I should pick up some shares while they’re down.

What happened

Heading into the quarter, analysts expected $12.1bn in revenue and adjusted earnings per share (EPS) of $1.47. But the company reported revenue of $11.4bn and adjusted EPS of $1.18. So there was an earnings miss and the firm lowered its full-year EPS guidance, to $13.02-$13.52 from $16.10-$16.60.

Still, the quarter didn’t look bad to me. Far from it. Revenue increased 20% year on year, driven by growth from Mounjaro and Zepbound. Excluding $1.42bn in Q3 2023 from the sale of rights for its olanzapine (antipsychotics) portfolio, revenue surged 42%!

Outside of weight-loss drugs, there was impressive 17% revenue growth in oncology, immunology, and neuroscience. This was a very strong quarter, despite what the share price drop might suggest.

Expanding markets

Eli Lilly’s market cap is now $748bn, which makes it one of the largest companies in the world. But if the likes of Apple, Amazon, and Microsoft have taught us anything, it’s that the already big can carry on getting bigger, as long as they keep finding new avenues of growth.

In this regard, I’m bullish on the company’s prospects. According to Morgan Stanley, the global market for blockbuster obesity drugs could increase by more than 15-fold by 2030. This is due to them potentially spreading beyond weight loss to treat a range of diseases.

For example, early research suggests that these GLP-1 drugs may have neuroprotective effects and could potentially slow the progression of Alzheimer’s disease. They also reportedly reduce alcohol intake, so could potentially treat addiction.

Of course, it’s early days to know any of this for sure. And there could be some negative long-term effects with these weight-loss drugs that we don’t know about. That’s a key risk, as is competition from market leader Novo Nordisk, the maker of Wegovy and Ozempic.

Also, due to high demand and supply shortages, there are loads of cheaper knock-offs floating about.

Should I rebuy?

I owned Eli Lilly stock a while back. However, I sold after it doubled in a year and the price-to-earnings (P/E) multiple went well above 100.

Currently though, the forward P/E ratio here is 37, falling to 24 by 2027. For a company with such a strong position in multiple massive growth markets — it also recently got an Alzheimer’s drug, donanemab, approved — I don’t think that’s outrageous.

Looking ahead, I reckon Eli Lilly looks likely to become the first $1trn drug company. I’ve put the stock back on my watchlist, with an eye to reinvesting at some point.

The post After it drops 13.5% in a day, is it time I bought this S&P 500 growth stock? appeared first on The Motley Fool UK.

The Magnificent who?

The Magnificent 7 is a loose term used to describe some of the highest-valued stocks trading on the S&P 500. The term was reportedly coined by Bank of America analyst Michael Hartnett in 2023 while discussing the stocks. In addition to Tesla, the list includes Alphabet, Amazon, Apple, Meta, Microsoft, and Nvidia. In some ways, it may be seen as a natural successor of the FAANG group of stocks.

The original list comprised the top seven S&P 500 stocks weighted on metrics like performance, innovation and economic conditions. However, Tesla has since fallen from seventh to 11th place in the S&P 500.

To EV or not to EV?

Tesla’s profit margins have skyrocketed since 2021, up from 2.2% to 15.5%. But, after reaching almost $100bn towards the end of 2023, revenue began to taper off. In its third quarter 2023 earnings release, Tesla revealed earnings per share (EPS) of only $0.58, down from $1.05 in Q3 2022.

Does this mean people are losing interest in electric vehicles (EVs)?

The reason for Tesla’s sudden decline is unclear but I’d imagine shareholders are concerned about CEO Elon Musk’s erratic behaviour. That said, one of Tesla’s key competitors in the EV space isn’t doing any better. NIO stock is down 27% this year, suggesting slower uptake of EVs generally might be part of the issue.

So if EVs look unlikely to perform well in 2024, who might take Tesla’s place in the Magnificent 7?

A major medical contender

Leading US drug company Eli Lilly (NYSE:LLY) is one S&P 500 stock with a better valuation than Tesla. In June last year, it was named the world’s largest healthcare company by market cap after surpassing UnitedHealth and Johnson & Johnson. 

The rapid gains followed a successful second final-stage trial of diabetes drug Mounjaro and planned approval for an Alzheimer’s treatment.

Eli Lilly is considered to be trading at 14.7% below analyst estimates, with earnings forecast to grow by 27% per year. Subsequently, the drugmaker’s future return on equity (ROE) is calculated to be around 64%.

Risks 

With over $20bn in debt and only $11.3bn in shareholder equity, Eli Lilly has a questionable balance sheet. The deficit leaves it with a debt-to-equity (D/E) ratio of 180%. It’s also worth noting that the company’s earnings growth slowed last year, with net profit margins down from 22% to 15.4%. In its most recent report, EPS was down to $5.80 from $6.93.

I still think Eli Lilly is a valuable stock with good growth potential but its balance sheet could threaten any place in the Magnificent 7.

Other possible contenders to replace Tesla include Warren Buffett’s ever-popular Berkshire Hathaway and computing giant Broadcom. Since Berkshire Hathaway currently sits just above Eli Lilly with 1.72% weighting, it would technically be the natural replacement for Tesla.

However, it was never specified that the group must include the top seven S&P 500 companies. Considering most companies in the group are very tech-focused, it may be more appropriate to include Broadcom, sitting just below Eli Lilly and just above Tesla.

The post The Tesla share price is down 24% this year! Can it remain in the Magnificent 7? appeared first on The Motley Fool UK.

PDD Holdings, Temu’s owner, saw its share price surge nearly 80% in 2023. Meanwhile, the market cap of Microsoft, part-owner of ChatGPT’s parent company, rose by a staggering $1trn.

What other investing themes might take off in 2024? Here are two areas I’m watching.

Next-generation medicines

First, I think mRNA-based therapeutics might attract more investor interest. These essentially teach the body how to make its own medicine. Like software, the code can be tweaked and improved. It’s revolutionary stuff.

Shares of mRNA pioneer Moderna (NASDAQ: MRNA) shot up when its Covid vaccine based on this technology started generating billions of dollars in 2021.

But the stock has struggled badly as those pandemic sales have started drying up. In fact, it’s down around 75% in 28 months.

In 2023, Moderna expects to generate sales of at least $6bn from its Covid booster shots, then $4bn in 2024.

However, by 2025, it anticipates doubling the number of Phase 3 programs and launching up to 15 products in five years across cancer, rare disease, and infectious disease. Up to four of those launches, including a flu/Covid combo, could come by next year. This should reignite growth.

Of course, this is biotechnology, so clinical disappointments are an unavoidable risk. But the firm already has the global manufacturing capacity and $12.8bn in cash and equivalents (as of September) to fund its growth.

Plus, Moderna just announced incredible results for its experimental skin cancer vaccine. In combination with Merck’s therapy Keytruda, it lowered the risk of death or relapse in patients by half after three years. It also reduced the risk of melanoma spreading by 62%.

Each vaccine is personalised to a patient’s specific tumor and approvals could come within the next two years.

To me, this appears transformational for both patients and likely Moderna. That’s why I recently added to my holding for the first time in over three years.

Potential wonder drugs

The second area I’m bullish on this year is weight-loss treatments. Specifically Novo Nordisk‘s Ozempic (for type 2 diabetes) and Wegovy, as well as versions of the same treatments from Eli Lilly (NYSE: LLY).  

According to the World Obesity Federation, more than 4bn people will be obese or overweight within the next 12 years. That’s why these could become the best-selling drugs ever.

This potential is reflected in forward price-to-earnings (P/E) ratios of 32.5 and 50 for Novo Nordisk and Eli Lilly, respectively, for FY 2024. These aren’t cheap stocks.

However, new data suggests these drugs may also cut the risk of stroke or heart attack, and may delay kidney disease progression in diabetes patients. So the market opportunity could be a lot larger than previously anticipated.

Additionally, researchers have found that patients taking Eli Lilly’s treatment regained roughly half their previous weight one year after stopping treatment.

After both stocks dropped in response to this news I swooped in to invest. My thinking is that long-term sales may prove even stronger if patients have to continue taking the drug to keep their weight down.

The post After ChatGPT and Temu, what could be the biggest 2024 stock market winners? appeared first on The Motley Fool UK.

The leader in GLP-1 drugs

When looking for portfolio exposure to GLP-1 drugs, it’s hard to bypass Danish pharmaceutical company Novo Nordisk (NYSE: NVO).

It’s the maker of Wegovy. It also makes Ozempic. This is a diabetes drug that has the same active ingredient as Wegovy and also leads to weight loss. It’s worth noting that Ozempic has only been approved by the US Food and Drug Administration (FDA) for the treatment of diabetes.

Thanks to the success of its weight-loss drugs, Novo Nordisk’s revenues are surging. Revenue is expected to be 27% higher than last year for 2023 after the company raised its guidance on multiple occasions this year.

On the downside however, the stock is now quite expensive. At present, it trades at 44 times this year’s forecast earnings and 37 times next year’s.

Personally, I’d be a little hesitant about buying in that multiple as it doesn’t leave much room for error.

FDA approval coming?

The other major player in the GLP-1 space is US pharma giant Eli Lilly (NYSE: LLY).

It has a diabetes drug called Mounjaro that leads to weight loss. And the FA could approved this product for obesity treatment shortly. Like Wegovy, it has shown to help patients lose a large proportion of their body weight (up to 16%).

Additionally, Eli Lilly is working on a new product called ‘triple G’. This is designed to mimic the action of the GLP-1 hormone and has demonstrated even more powerful effects when it comes to weight loss.

Unfortunately, this stock is very expensive as well. Currently, its forward-looking P/E ratio is 88, falling to 47 using next year’s earnings forecast.

Again, I’d be a little hesitant about buying in at that multiple.

Other weight-loss stocks

Now, while Novo Nordisk and Eli Lilly are the two main companies in the GLP-1 space right now, there are plenty of other growth stocks that offer exposure to the theme.

Ultimately, the weight-loss drug boom could benefit a range of companies including healthcare consumables businesses (Catalent and Thermo Fisher Scientific are two helping Novo Nordisk make Wegovy) and virtual healthcare companies.

One stock I’ve had a nibble at to get some exposure to the theme is LifeMD. It’s a small US virtual healthcare provider that has just launched a new GLP-1-focused weight management programme.

Eligible participants can get access to GLP-1 medications like Wegovy and Ozempic through this programme if it’s deemed clinically appropriate.

LifeMD has said that its weight management programme could be a catalyst for significant growth and enhanced profitability. So I think there’s a lot to be excited about here.

That said, this is a high-risk, speculative stock as the company is tiny and not yet profitable. Given the risk level, I’ve only taken a really small position.

The post Hot growth stocks: how to invest in Wegovy and other GLP-1 weight-loss drugs appeared first on The Motley Fool UK.

Berkshire Hathaway

What it does: Warren Buffett’s diversified holding company uses an insurance float model to invest in dozens of businesses.

By Charlie Carman. Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) has broken the $700bn market capitalisation barrier, but it’s never reached the trillion-dollar threshold. I think that’s only a matter of time. As I write, the company would need to deliver a 36% share price gain to achieve this landmark.

From 1965 to 2022, Berkshire Class A stock achieved a 19.8% compound annual growth rate. Returns have slowed since the turn of the millennium, but the annual average remains firmly in double digits.

Recent results have been encouraging. In the first quarter, Berkshire posted a $35.5bn profit and accelerated its share repurchases, buying back $4.4bn of its own stock.

A major risk facing the company is the potential loss of investor confidence that could result from its CEO’s looming departure. After all, Buffett is 92.

However, his successor Greg Abel has already taken on many responsibilities, suggesting the handover could be less problematic than some fear.

Charlie Carman owns shares in Berkshire Hathaway. 

Berkshire Hathaway

What it does: Berkshire Hathaway is a diversified conglomerate that operates in sectors including insurance and retail and owns a stock portfolio.

By Christopher Ruane. The famed investor Warren Buffett has built Berkshire Hathaway over the course of decades.

Since taking the company over in 1965, Buffett has achieved a compounded annual gain of 19.8% in its per-share market value.

Some years are markedly better than others. In general, I think the defensive nature of many Berkshire businesses means that it can do well when the wider market stumbles. In 2007, for example, its compounded annual gain was 28.7% while the benchmark S&P 500 only achieved 5.5%.

The economy looks weak again to me, but one big difference is Berkshire’s massive position in Apple. If tech stocks including Apple fall, that could hurt Berkshire’s share price.

But I think the company’s broadly defensive asset base and Buffett’s steady hand on the tiller could help Berkshire ride out the next storm well. Its shares have risen 81% in five years and today the market capitalisation is $736bn.  

Christopher Ruane does not own shares in any of the companies mentioned.

Eli Lilly

What it does: Eli Lilly is a global healthcare company with products spanning oncology, immunology, diabetes and neurology.

By Ben McPoland. I think biopharma giant Eli Lilly (NYSE: LLY) could become the newest $1trn stock. Its market cap of $435bn already makes it one of the largest companies in the world.

The firm has a packed late-stage pipeline of potential blockbusters. One is its Alzheimer’s treatment, donanemab,which has successfully slowed memory and thinking decline in a rigorous phase 3 trial.

A second is Mounjaro, which is a medicine already used by people with type 2 diabetes. It is currently being assessed by US regulators and the NHS as a repositioned treatment for weight loss.

Needless to say, a proven and safe treatment for obesity (which is a global health issue) could be a huge deal for the company. Indeed, some analysts think it could become the biggest selling drug ever. And it could be approved by the end of this year. 

One risk is that this huge potential is already priced into the stock, with its trailing P/E of 72. Any disappointing regulatory news could hit the share price hard.  

Ben McPoland does not own shares in Eli Lilly.

The post “The next new $1trn stock will be…” appeared first on The Motley Fool UK.

What is the S&P 500?

The Standard & Poor’s 500, or S&P 500, is a stock market index that comprises 500 of the largest companies publicly listed on US stock exchanges. Because it encompasses companies spanning nearly all market sectors and industries, it’s widely considered one of the best benchmarks for the overall health of the American stock market and, in turn, the economy. Specifically, the index also serves as an insightful snapshot of how larger US companies are performing.

Given the strength of the US economy over the last century, numerous index funds are available to investors seeking to replicate its performance. It often serves as a central foundation for many retirement plans. At the same time, actively managed funds often use it as a benchmark to compare their own performance against.

RELATED: How to Buy and Trade US Shares in the UK

Why invest in the S&P 500?

Investing in the S&P 500 index means that you can own shares in some of the best companies in America with just one investment.

Here are three great reasons for investing in the S&P 500:

1. Simple and cheap

Investing in an S&P 500 index fund is relatively straightforward. There are plenty of similar trackers to choose from, most offering the same results at an exceptionally low cost. After all, these trackers are not actively managed funds. And that means more of the investor’s money is going towards growing wealth rather than paying management fees.

Since index funds effectively put an investment portfolio on autopilot, a passive investing strategy is very low-maintenance, making it easy to automate with regular contributions. As a result, this investment vehicle is often considered ideal for retirement accounts, such as SIPPs or Investment Lifetime ISAs.

2. Diverse selection of companies

By investing in an S&P tracker fund, a portfolio gains indirect exposure to 500 of the largest US-listed businesses. That includes companies across almost every sector, such as technology, healthcare, finance, consumer goods, manufacturing, materials, and real estate, among others.

That means if one business or sector is struggling, the adverse impact on an investor’s portfolio can be offset by the strength or continued outperformance of another. That’s why index funds generally provide better diversification benefits compared to a concentrated, hand-picked portfolio of US companies.

3. Track record of great performance

While there have been wobbles along the way, the S&P 500 has historically delivered a return of around 10% per year. At this rate, investors have, on average, doubled their wealth every seven years, assuming a consistent approach to investing.

While there are actively managed funds that have outperformed the index, most have struggled to maintain their lead after accounting for the high management fees. As such, many investors could have enjoyed superior performance if they had opted to effectively own the whole market.

However, as seen in recent years, the stock market can be exceptionally volatile, and that includes the S&P 500. Double-digit drawdowns can and do happen. Therefore, investors should keep in mind that past performance is not a guarantee of similar future returns.

What are the drawbacks of investing in the S&P 500?

While investing in S&P 500 stocks comes with a lot of advantages, there are also some drawbacks to consider. Greater exposure to the technology industry has helped pave the way to superior returns, but it also introduces significantly higher levels of volatility. And this trend has only intensified over time.

Since the S&P 500 is weighted based on market capitalisation, the biggest US tech stocks now dominate. In fact, seven of the largest 10 companies operate within the tech industry. Overall, this sector represents close to a third of the total.

Consequently, despite an investment being indirectly diversified across 500 companies, a portfolio would still be fairly concentrated. In fact, just the top 10 stocks are responsible for close to 38% of overall returns. This is why the S&P 500 has become increasingly more volatile in recent years – significantly more than other large-cap indices such as the UK’s FTSE 100.

There are alternative index funds that allow investors to invest in the S&P 500 on an equal-weighted basis rather than market-cap weighting. This helps restore the diversification benefit of the index. But it also increases the weighting on companies that have underperformed. So while these alternative funds are much less volatile, the returns haven’t been as impressive.

What are the top 10 S&P 500 stocks?

In order of market capitalisation, the 10 largest companies currently dominating the S&P 500 as of January 2026 are:

What is the best way to invest in the S&P 500?

The most common way to invest in this index is through a fund.

Investing in an S&P 500 index fund isn’t really something that needs a lot of maintenance because it should all be arranged automatically. So it’s definitely an investment you can manage yourself. Your only options are to buy or sell the fund.

This is usually done as an exchange-traded fund (ETF). An ETF just means that the fund is available on multiple platforms and exchanges.

How you invest in the S&P 500 will be very similar across all platforms. So, it’s important that you aim for a fund with low fees. All platforms should contain the same companies.

What are the most popular funds?

It’s important to remember that S&P 500 funds should be tracking the same index. This means that any difference in returns should be marginal.

Nevertheless, some are cheaper than others, and there are a few that tend to be very popular amongst investors, such as:

• iShares Core S&P 500 UCITS ETF
• Vanguard S&P 500 UCITS ETF
• Invesco S&P 500 UCITS ETF
• SPDR S&P 500 UCITS ETF
• HSBC S&P 500 UCITS ETF

Bear in mind that some investment companies might call their fund something like ‘The America 500’ fund. This is to avoid paying licensing fees and keep their costs down. Although these can be the same as ‘official’ S&P 500 index funds, it’s always worth double-checking exactly what’s in the fund you’re buying.

What is the minimum investment for the S&P 500?

When investing with funds, minimum investment requirements can creep into the picture. As the name suggests, a minimum investment requirement forces investors to put a minimum amount of capital into a fund in order to invest.

Depending on which index fund, the minimum investment requirement will vary. However, in most cases for index trackers, there isn’t one beyond the share price of the fund itself, especially for an ETF.

For example, the iShares Core S&P 500 UCITS ETF does not have a minimum investment requirement. However, at a share price of around $745 (£558), investors must have at least $745 to start investing in the S&P 500 with this index tracker.

Alternatively, the Vanguard S&P 500 UCITS ETF offers effectively the same access to investing in the S&P 500, but since the share price is currently around £98, it’s far more accessible to investors with smaller sums of capital.

Where can I invest in the S&P 500?

Common ways to invest in this popular index are:

• Using a share-dealing platform or brokerage
• With a robo-advisor
• Through a financial advisor

The cheapest way is to do it yourself through a platform. This will be the preferable option for most people because it is quite a simple investment to purchase and manage.

An investing solutions provider may be difficult to organise because they choose the investments, and a financial adviser is likely to be more expensive with no real added benefit.

How do I invest in the S&P 500 in the UK?

Investors cannot buy the S&P 500 index directly, but they can invest in it through passive index funds that track its performance, such as an exchange-traded fund or ETF. To get started, there are three main steps:

1. Research & Choose An S&P 500 Fund

The most common low-cost way to access the S&P 500 is through ETFs. And two popular options here are iShares Core S&P 500 UCTIS ETF or Vanguard S&P 500 UCTIS ETF, although there are other options.

When selecting a fund, it’s essential to compare the fees, which are usually measured by the total expense ratio (TER). This is measured as a percentage representing how much of your investment will be gobbled up each year. Therefore, a lower TER means more of your money stays invested. Typically, the TER for index funds is usually below 0.1% per year.

2. Pick An Investment Platform

To invest in an ETF, investors need access to the stock market through a Share Dealing Account. Each investment platform offers a different suite of features and tools, so it’s important to check if it has the ETF available to buy. Something else to watch carefully is the fees the platform charges.

RELATED: Top Picks For UK Share Dealing Accounts

For British investors, it’s also worth considering two special share dealing accounts:

• Stocks and Shares ISA – shields your profits from capital gains, dividends, and income taxes, making it the best option for most investors.
• Self-Invested Personal Pension – shields your profits from capital gains and dividends, while deferring income taxes until withdrawals begin. Also provides tax relief on deposits when building wealth, making it a suitable option for investors saving for retirement.

3. Fund Your Account And Start Investing

Deposit money into your account and purchase the fund. Most platforms should allow you to use a lump sum or invest a regular monthly amount to pound-cost average. By using dollar-cost averaging, it can smooth out short-term market volatility.

Please note that tax treatment depends on the specific circumstances of the individual and may be subject to change in the future.

LSE Index Fund vs S&P 500

LSE index funds are a popular alternative to the S&P 500 in Britain. The main difference lies in geographical exposure. An LSE index fund, such as one tracking the FTSE 100 or FTSE 250, allows investors to invest primarily I the UK’s largest companies.

While these firms are global in nature, many earn significant revenues from overseas and are often heavily tilted towards defensive sectors like energy, financials, consumer staples, and healthcare.

By contrast, as previously mentioned, the S&P 500 represents the 500 largest businesses in the US. It grants investors far better access to fast-growing technology giants. And since this sector has been a top performer, the historical returns of the S&P 500 have been stronger over the long run compared to the FTSE 100 or FTSE 250, albeit at a greater level of volatility.

Many UK investors often choose to invest in both, relying on the S&P 500 to build their wealth and using the FTSE 100 as a balance to offset volatility and gain exposure to the UK market. Holding a mix of the two can improve portfolio diversification while also generating a more substantial passive income stream from dividends, as UK shares typically offer superior yields.

Should I invest in the S&P 500?

If you want a straightforward, low-cost investment that gives you access to some of America’s best companies, then this might be a great pick. The whole index contains companies of different sizes from various industries, which is what you want in a diversified portfolio.

However, although you get some diversification, it is heavily reliant on the US. Many of the companies will operate internationally, but they are still influenced by what is happening in America. What happens with the dollar or politics can really impact the S&P 500.

Because the index is weighted by market capitalisation, most of your investment goes to the biggest companies. This can work against you sometimes, as these large companies have already seen a lot of growth. Meanwhile, the smaller-cap companies can see bigger gains.

Frequently asked questions

Should a beginner invest in the S&P 500?

Yes. Investing in an S&P 500 low-cost index tracker is often considered to be a good investment for beginners. It offers several advantages for novice investors, including:

• Diversification – The index contains 500 of the largest companies listed in the US.
• Strong Past Performance – While not an indicator of future results, the S&P 500 has historically delivered an average annualised return ranging from 7% to 11%.
• Passive Approach – Investors aren’t required to actively manage their portfolio as the index is managed by a professional or automated algorithm.
• Low Fees – Most modern index trackers are managed by computer algorithms, making them a very low-cost approach to investing. Most passive index trackers typically charge a fee that is less than 0.1%.

Can you directly invest in the S&P 500?

No. You cannot directly invest in the S&P 500. Instead, investors have to buy shares of an index fund that specifically tracks and aims to replicate the desired index.

What if I invested $1,000 in the S&P 500 5 years ago?

Over the last five years, the S&P 500 has delivered a total return of 94% as of January 2026. This includes capital gains as well as dividends.

Therefore, if an investor had bought $1,000 worth of a low-cost index tracker, the value of their investment today would be $1,940. However, this is before paying any fund fees or taxes.

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