Level 1 — The FoundationThe S&P 500 Index ETF

The detail

Why the S&P 500

Index level, 1925–2026, on a logarithmic scale, so equal percentage moves look equal. Annual to 1984, monthly thereafter; pre-1957 uses the predecessor composite. Source: S&P Dow Jones Indices / public data. Past performance is not a guide to future returns.

The S&P 500 isn’t a fixed list of companies. When a company shrinks, it drops out. When a new one grows large enough, it’s added. So the index quietly keeps tilting towards what’s working and away from what isn’t, on its own, at no cost to you. You never have to make that call.

Over the long run it has been very hard to beat. The 500 companies in it make trillions in profit and sell to the whole world. Buy the index and you stop trying to guess which ones will win — you own all of them.

And it’s cheap. 0.07% a year is £7 on every £10,000. The adviser I fired charged me around fifteen times that, for worse results.

Why the S&P even though you’re in the UK

This is the question I get most. You don’t buy the S&P 500 to bet on America. You buy it because that’s where most of the world’s best companies are listed.

Those firms earn their money everywhere — Europe, Asia, your own high street — and a large share of their sales come from outside the US. You’re buying global businesses that happen to be listed in New York.

The catch is that it’s priced in dollars, so the pound’s moves affect your returns too. That works both ways. Over a long horizon, how the companies do has mattered far more than the currency.

What to expect

It falls. Then it recovers.

Look back at the chart of the last hundred years. From a distance it’s a line heading up. Up close it’s a run of crashes. The market lost 86% in the early 1930s, nearly halved in 1973–74, fell 49% in the dot-com crash, 57% in 2008, and a third in a few weeks in early 2020.

Each time, it recovered and then went higher than before.

This is the part that matters. The strategy only works if you sit through the bad years. Whoever sold in March 2009 or March 2020 locked in the loss. Whoever did nothing got it all back, and more. The falls aren’t the real risk. Selling during them is.

The fund we hold

We use VUAG. There are others, and they’re fine.

The index is the strategy. The fund is just the wrapper. We hold the Vanguard S&P 500 UCITS ETF (Accumulating) — VUAG — for three reasons: it’s cheap at 0.07%, it’s large and easy to trade, and the accumulating version reinvests the dividends for you, so it compounds without you doing anything.

That last point is the one thing worth understanding. An accumulating fund (Acc) reinvests the dividends. A distributing fund (Dist) pays them out as cash. Same index, different plumbing. If you just want it to grow untouched, Acc is simpler. That’s why we hold VUAG rather than its distributing twin, VUSA.

It isn’t the only good option. Any of these gets you the same 500 companies. Pick on cost, size, and whether you want Acc or Dist — not on the brand.

Fund size, TER and replication method as listed on justETF. Sizes are quoted in the currency justETF reports for each fund. Check before buying — figures move.

Invesco’s SPXP is slightly cheaper at 0.05%, but it’s synthetic: it tracks the index through a swap contract instead of holding the shares. That can track a little more tightly, but it adds counterparty risk most beginners would rather avoid. We’d rather own the actual companies, so we use a physical fund.