There are various ways you can invest in the S&P500 Index, some are more expensive, some are cheaper – if looking purely at cost alone. The most obvious thing to state is that by investing into an index with 500 component parts, it’s obviously cheaper (and a lot easier to manage) to choose an ETF or fund which does this automatically than it is to individually trade 500 separate company equities (stocks/shares). Particularly when you consider that an index is continually adjusting to the all the increases and decreases in value of all the component parts – in real time – it’s simply not possible to accurately track a large index without some process automation.
Generally speaking, if you’re investing on a regular basis (monthly for example), it’s cheaper to have a product which doesn’t charge you transaction fees each time you invest more money than it is to use a platform or investment account which will charge you a transaction fee every time you trade, so if you use anything offering full brokerage facilities such as an investment platform, it works out to be crazy expensive if you’re adding relatively small amounts on a regular basis.
Some of the “modern” FinTech banks which allow you to invest in equities & ETF’s have very low fees, or in some cases no fees, which is great – we love them, and we use them ourselves for some things (not retirement planning though). They are great options for some aspects of your financial planning, particularly if you are in a financial situation where you can’t yet commit to something over the long term, or are investing for a shorter duration, or may need to liquidate and withdraw your investments at a moment’s notice. There are no tax advantages of using this type of product, which can make the overall cost expensive over time, compared to a product which legally protects you from taxation on your investment growth.
Once you start looking for adding in the capital guarantees and minimum returns though, it’s usually either not possible, or prohibitively expensive, to set up that sort of thing on your own – even if you know how to do it (which most people don’t). These things are only financially viable at large economies of scale, which you don’t have if you’re only investing a few hundred or even a few thousand dollars a month.
It’s also worth considering the safety and security of your assets – the reason that the new FinTech banks are able to offer their services for free is that in addition to scooping up all of your data, they combine all customers assets into one (that’s how they can offer fractional shares etc), and incidentally are then able to lend the combined assets out to other financial institutions, for either a fixed fee or at an agreed interest rate (check their terms and conditions if this surprises you). It’s the business model, it’s how they make a profit without you paying them.
To be clear, we are NOT saying this is bad, we use these type of things ourselves, and from an ease-of-use perspective for day-to-day banking facilities, it’s one giant leap for humanity compared to how “traditional” banks operate. And being able to invest into equities, indices, commodities, and crypto from one app is superb. We wouldn’t (and don’t) hold high-value long-term assets at these institutions though – it’s simply not as safe as other options, and we’re of the opinion that if risk can be avoided and/or reduced, it should be avoided and/or reduced, whilst balancing that with ease-of-use. Don’t compromise your finances, optimise your finances.
For medium-to-long term financial planning, particularly something as important as your pension plan, it’s better to rely on something which has segregated portfolios to insulate and isolate your assets from others, has a capital guarantee and guaranteed minimum future value, and doesn’t charge you trading fees every time you add money on a regular basis. Having a 0% tax rate is also a benefit, which you don’t get with the majority of other options, whether traditional or modern. This pension plan has all of the above, is perfect for your retirement planning, and is a very cost-effective way of investing in the S&P500 Index on a regular basis over a fixed duration.