What Is the S&P 500? - A Mirror of the US Economy
The S&P 500 is a market-capitalization-weighted stock index composed of 500 large-cap US companies. First calculated by Standard & Poor's in 1957, it covers approximately 80% of the total US stock market capitalization. Constituent stocks are reviewed quarterly and selected based on criteria including profitability, liquidity, and sector balance. As of 2024, the top 10 holdings (Apple, Microsoft, NVIDIA, Amazon, Meta, etc.) account for roughly 35% of the index, reflecting a notable concentration in the technology sector.
The S&P 500's long-term return is approximately 10% annualized (including dividends, nominal basis), and even after adjusting for inflation, it has delivered roughly 7% annualized returns. This consistent long-term growth is underpinned by the innovation capacity of the US economy and corporate earnings growth. Warren Buffett's instruction in his will to 'invest 90% of assets in an S&P 500 index fund' is an iconic testament to the index's reliability.
How to Invest in the S&P 500 from Japan
There are three main ways for Japanese investors to invest in the S&P 500. The first is through mutual funds such as eMAXIS Slim US Equity (S&P 500) or SBI V S&P 500 Index Fund. These have low expense ratios of around 0.09% per year and allow systematic investing from as little as 100 yen. The second is through ETFs listed on the Tokyo Stock Exchange (e.g., 2558 MAXIS US Equity S&P 500), which can be traded in real time like stocks. The third is purchasing US-listed ETFs (VOO, SPY, IVV) through a foreign stock trading account.Books on choosing US stock ETFs compare the features of each product.
Understanding Currency Risk - The Impact of Yen Strength and Weakness
For Japanese investors, S&P 500 investing comes with currency risk. Even if the S&P 500 rises 10% in dollar terms, if the yen appreciates 10% (dollar weakens) over the same period, the yen-denominated return is essentially zero. Conversely, during the yen depreciation from 2022 to 2024, the yen-denominated return of the S&P 500 significantly exceeded its dollar-denominated return. Over the long term, purchasing power parity-based exchange rate adjustments tend to take effect, so for investment horizons of 20 years or more, the impact of currency fluctuations is considered relatively small.
Whether to choose a currency-hedged product or accept currency fluctuations with an unhedged product is left to the investor's judgment.Books on currency risk and overseas investing can also serve as a reference for decision-making.
Next Steps for Starting S&P 500 Investing
To start investing in the S&P 500, first consider utilizing a NISA (Nippon Individual Savings Account). Under the new NISA system launched in 2024, the tsumitate (systematic investment) allowance of 1.2 million yen per year lets you invest tax-free in low-cost index funds such as eMAXIS Slim US Equity (S&P 500). You can start with as little as 10,000 yen per month, so the key is to set up a small automatic contribution and build the investing habit. Popular brokerages include SBI Securities, Rakuten Securities, and Monex Securities, known for their point-back programs and robust tools.
Decide your approach to currency risk in advance as well. If you are investing for 20 years or more, it is rational to accept currency fluctuations with an unhedged product. For a medium-term horizon of 5-10 years, a compromise of holding hedged and unhedged products in equal proportions is also worth considering. Once you start investing, the most reliable way to achieve results with S&P 500 investing is to continue your monthly contributions steadily without being swayed by short-term market fluctuations.