The S&P 500 has long been viewed as a cornerstone of global equity markets, offering investors broad exposure to the largest publicly listed companies in the United States.
With recent market volatility and a 10% year-to-date decline, many UK investors are questioning whether now is the right time to buy in.
This article explores the current investment landscape, historical performance, and key indicators to help determine if the S&P 500 remains a wise long-term investment choice.
Why Does the S&P 500 Remain a Strong Investment Option Today?
The S&P 500 represents a collection of 500 of the largest companies listed in the United States. It includes businesses from a wide range of industries such as technology, healthcare, financial services, consumer goods and industrials.
This variety offers investors an efficient way to gain exposure to a broad portion of the US economy.
One of the core strengths of the S&P 500 is its ability to provide instant diversification. Rather than relying on the performance of a single stock or sector, investors gain access to a wide range of companies. This reduces the risk that comes from relying on any one firm or industry for returns.
In addition to diversification, the index is known for its resilience. Historical data shows that despite downturns, wars, economic crises and global pandemics, the S&P 500 has continued to grow over time.
The average annualised return of the index has been around 10% since its formal inception in 1957.
The structure of the index also ensures it evolves with the market. Companies that underperform or no longer meet inclusion criteria are removed and replaced by more relevant or financially strong firms.
This automatic rebalancing keeps the index current and aligned with the shifting economic environment.
Benefits of Investing in the S&P 500 Include
- Access to leading multinational companies with global operations
- Broad exposure to nearly 80% of the investable US market capitalisation
- Lower risk compared to individual stocks due to diversification
- The historical potential for wealth accumulation over long periods
Is Now a Good Time to Buy the S&P 500 Despite Recent Market Drops?
As of 2025, the S&P 500 has experienced an approximate 10% decline since the start of the year. This kind of drop can be unsettling for investors, but it’s important to view it through a long-term lens.
Historically, similar corrections have provided attractive opportunities for those who remain invested.
Market pullbacks are part of the investment cycle and can occur due to various factors such as changes in interest rates, economic data releases, political uncertainty or shifts in investor sentiment.
While timing the market is extremely difficult, long-term investors often benefit from these dips by purchasing quality assets at reduced prices.
For example, during the COVID-19 crash in 2020, the index saw a sharp decline but recovered strongly in the following months.
Investors who bought during that downturn achieved significant gains by simply holding their positions.
The strategy of staying invested during market declines relies on the principle that markets tend to recover over time. Corrections often provide a reset in valuations and a chance for investors to buy assets at more favourable prices.
Those who are patient and avoid emotional decisions are better positioned to benefit when markets rebound.
What Are the Key Benefits of Investing in the S&P 500 for UK Investors?
Investors based in the UK often seek international diversification to spread risk beyond domestic holdings.
The S&P 500 is one of the most accessible and reliable ways to achieve this objective. It includes many of the world’s most influential companies such as Apple, Microsoft, Johnson & Johnson and JPMorgan Chase.
Key advantages for UK investors include:
- Exposure to the performance of the largest US companies
- Easy access through ETFs and mutual funds available on UK platforms
- Potential for capital growth supported by innovation and productivity in the US economy
- Option to invest through tax-efficient vehicles like Stocks and Shares ISAs and SIPPs
Many platforms in the UK offer fractional investing, which allows individuals to start with modest amounts.
This democratises access to the US market and makes the S&P 500 accessible to retail investors at different levels of financial commitment.
In addition to market performance, currency movements can also influence returns. When the British pound weakens against the US dollar, the value of US investments tends to increase when converted back to pounds.
This currency effect can amplify returns for UK investors, although it also adds another layer of risk.
How Do Market Indicators Help Decide When to Invest in the S&P 500?
Understanding market indicators can provide context for deciding whether it’s a suitable time to invest. These indicators fall into four main categories: volume, trend, volatility, and momentum.
Here’s a detailed table of the key indicators and what they reveal:
| Category | Indicator | What It Measures | Why It Matters |
| Volume | Average Daily Trading Volume | Shares traded daily over a period | High volume on rising days suggests strong institutional buying |
| Volume | On-Balance Volume (OBV) | Cumulative volume tracking up/down days | Rising OBV may precede breakouts; falling OBV can warn of price declines |
| Volume | Volume-Weighted Average Price | Average price weighted by trading volume | Indicates buyer/seller dominance throughout the day |
| Trend | 200-Day Simple Moving Average | Long-term price average | Price above this level suggests bullish momentum |
| Trend | Golden Cross / Death Cross | Crossovers of short- and long-term averages | Signals trend changes—bullish or bearish |
| Volatility | CBOE Volatility Index (VIX) | Expected 30-day market volatility | Higher values suggest greater market uncertainty |
| Volatility | Average True Range (ATR) | Average daily price range | Rising ATR signals increasing volatility and potential risk |
| Momentum | Relative Strength Index (RSI) | Price gains vs. losses (0–100 scale) | Above 70 may mean overbought; below 30 can indicate undervalued stocks |
| Momentum | MACD | Trend-following momentum indicator | Crossovers and divergences signal trend shifts |
Using these indicators in combination rather than isolation provides more accurate signals about the market’s direction and health.
Should You Invest in the S&P 500 During Economic Recessions?
Recessions can create an atmosphere of fear and hesitation among investors. However, history shows that these periods often offer attractive buying opportunities for those with a long-term perspective.
Once the initial economic shock subsides, markets typically begin a recovery phase, eventually surpassing previous highs.
Research shows that buying into the S&P 500 after a recession has delivered competitive returns when the investment was held for at least three years.
The logic is simple: prices are generally lower during economic slowdowns, making it possible to acquire more shares for the same investment amount.
Here is a comparison of returns based on timing of investment:
| Investment Timing | Average 3-Year Return |
| During a Recession | 11.2% |
| Outside Recession | 8.5% |
This table highlights that investors who enter the market during difficult periods may achieve higher average returns. That said, timing alone should not drive investment decisions. It is important to consider risk tolerance, financial goals and investment horizon.
What Is the S&P 500 Forecast for 2025 and How Should You React?
Forecasts for the S&P 500 in 2025 vary based on analysts’ expectations of economic growth, corporate earnings, interest rates and political developments.
Major financial firms have released different targets reflecting their outlooks on the global economy and market drivers.
For instance, Goldman Sachs has revised its forecast for the S&P 500 to 6,200 by the end of 2025, down from a previous estimate of 6,500. UBS has taken a more conservative stance, setting a target of 5,800.
These adjustments have been influenced by trade tensions, proposed policy changes and macroeconomic indicators.
While such forecasts offer useful context, they are speculative and subject to change. Investors should avoid making decisions solely based on these predictions.
A long-term plan that includes periodic contributions, diversification and a focus on goals remains a more effective strategy.
Does the S&P 500’s Structure Pose a Concentration Risk for Investors?
The S&P 500 is widely regarded as the leading benchmark for assessing the health of the U.S. stock market. It covers 500 of the largest publicly traded companies, accounting for roughly 80% of the total market capitalisation in the United States.
For investors around the world, including in the UK, this makes it a go-to index for gaining diversified exposure to the American economy.
However, the way the S&P 500 is structured introduces a notable risk that is often overlooked: it is a capitalisation-weighted index.
This means that larger companies make up a disproportionately higher share of the index, and their stock price movements significantly influence the overall performance of the index.
At present, just ten companies contribute more than one-third of the S&P 500’s performance. For example:
- Apple represents approximately 6.8% of the index
- Microsoft contributes around 6.2%
- The top 10 holdings account for over 35.6% of the total index
This means that even though the S&P 500 contains hundreds of companies, a handful of mega-cap tech firms wield considerable influence.
In fact, these top ten stocks have more impact than the smallest 300 companies in the index combined. For some investors, this presents a level of concentration that undermines the principle of broad diversification.
This scenario can lead to an imbalance where:
- Portfolio performance becomes highly reliant on the success of a few large-cap tech firms
- Underperformance from just one major player can significantly affect returns
- The broader economic performance may not be accurately reflected if only the top stocks are driving growth
Can Equal Weighting Offer Better Diversification in S&P 500 Investing?
An increasingly popular solution to this issue is the Invesco S&P 500 Equal Weight ETF (Ticker: RSP).
This fund includes the same 500 companies as the traditional S&P 500 but uses an equal weighting methodology. Each constituent company holds the same weight in the portfolio, regardless of market capitalisation.
This method changes the dynamics of investment exposure in several ways:
- Tech giants like Apple, Microsoft, and Nvidia carry no more influence than smaller companies such as General Motors, Occidental Petroleum, or Hormel Foods
- Investors gain a more balanced representation of the US economy
- Smaller and mid-sized companies have a greater impact, increasing exposure to potential high-growth opportunities
Although an equal-weight strategy might underperform during periods of strong performance by mega-cap stocks, it often delivers more stable and diverse returns over the long term.
Over the past four decades, the equal-weight version of the S&P 500 has outperformed the traditional cap-weighted index by more than 400 percentage points in total return.
Here is a comparison of the two approaches:
| Feature | Cap-Weighted S&P 500 | Equal Weight S&P 500 (RSP) |
| Weighting Method | Based on market capitalisation | Equal allocation to all 500 stocks |
| Exposure to Mega-Cap Stocks | High | Moderate |
| Influence of Top 10 Companies | Over 35% | Equal to all other components |
| Long-Term Total Return (40 years) | Lower | Higher by 400+ percentage points |
| Expense Ratio | Typically 0.03% – 0.07% | Around 0.20% |
While the expense ratio of the Invesco Equal Weight ETF is slightly higher than traditional S&P 500 index funds, it remains low compared to actively managed funds and offers a unique advantage in terms of diversified exposure.
Investors who are concerned about overexposure to a small number of high-profile stocks may find the equal weight strategy a more suitable long-term solution.
It aligns better with the goal of spreading risk evenly across a wide range of sectors and companies.
Is Equal Weighting a Viable Long-Term Strategy for UK Investors?
For UK investors aiming for diversified international exposure, equal-weight ETFs offer an additional layer of balance in their portfolios.
The broader representation of companies across different industries and sizes may be beneficial during periods of market rotation or when smaller companies outperform.
This strategy could be particularly appealing in scenarios where:
- Tech stock valuations appear stretched or face regulatory pressure
- Broader economic recovery lifts smaller and mid-cap firms
- Investors want to reduce reliance on high-growth, high-volatility names
Although equal weighting reduces exposure to mega-cap growth stocks, it tends to improve participation in gains from under-the-radar companies with high growth potential.
Over time, this approach has shown its strength in delivering market-beating returns with a different risk profile.
How Can UK Investors Start Investing in the S&P 500?
Getting started with S&P 500 investing is relatively simple for individuals in the UK. Many popular platforms offer index-tracking funds and ETFs that replicate the performance of the S&P 500.
These investment vehicles can be accessed through general investment accounts or tax-advantaged wrappers such as ISAs and SIPPs.
Steps to Begin Investing
- Open an account with a regulated UK investment platform like Vanguard, Hargreaves Lansdown or AJ Bell
- Choose an S&P 500 ETF or index fund based on cost and performance history
- Set up regular contributions to build your investment over time
- Consider using a Stocks and Shares ISA to shield returns from taxes
The simplicity and low cost of these products make them an excellent choice for those seeking passive exposure to the US market.
Investors can start with a lump sum or adopt a monthly contribution plan, depending on their financial situation.
What Are the Risks of Investing in the S&P 500 Right Now?
Despite its many advantages, investing in the S&P 500 comes with risks. One of the main concerns in 2025 is market volatility, driven by geopolitical tensions, inflationary pressures and upcoming elections in the United States.
Some of the risks include:
- Sharp fluctuations in prices due to macroeconomic shocks
- Concentration in certain sectors like technology, which can be vulnerable to regulation or valuation shifts
- Currency risk for UK investors, as returns are influenced by GBP/USD exchange rates
To manage these risks, investors can use approaches like diversification across asset classes, regular portfolio reviews and dollar-cost averaging.
The goal is not to eliminate risk entirely but to ensure it aligns with one’s investment objectives and time horizon.
Conclusion
Investing in the S&P 500 remains a viable and potentially rewarding strategy for UK investors, especially those with long-term horizons.
Despite recent pullbacks and economic concerns, the historical performance, diversification benefits, and resilience of the index argue strongly in favour of continued investment.
Rather than attempting to time the market, focusing on consistent contributions, informed decisions, and risk management will yield better outcomes.
For most long-term investors, now remains a good time to consider or increase exposure to the S&P 500.
FAQs
How does the S&P 500 differ from the FTSE 100?
The S&P 500 focuses on US companies and is broader in terms of sector representation, while the FTSE 100 comprises the 100 largest UK-listed firms, often heavily skewed towards financials and energy.
Are S&P 500 ETFs available on UK trading platforms?
Yes, most major UK platforms like Hargreaves Lansdown and Vanguard UK offer ETFs that track the S&P 500.
Can I invest in the S&P 500 using an ISA?
Absolutely. You can invest in S&P 500 ETFs or index funds within a Stocks and Shares ISA, offering tax-free growth.
What is dollar-cost averaging in index investing?
It’s a strategy of investing a fixed amount regularly, regardless of market conditions. This reduces the impact of volatility and removes emotional bias.
How often does the S&P 500 get rebalanced?
The index is rebalanced quarterly to ensure it accurately reflects the US market and includes only qualifying companies.
Is it risky to invest in the S&P 500 during an election year?
Election years can increase market volatility, but long-term investors usually benefit from staying invested through political cycles.
What’s the minimum amount required to invest in the S&P 500 from the UK?
Some platforms allow you to begin with as little as £50 monthly into an S&P 500 index fund or ETF.
