Index Investing: The Standard & Poor's 500 Index
  1. Index Investing: Introduction
  2. Index Investing: What Is An Index?
  3. Index Investing: The Dow Jones Industrial Average
  4. Index Investing: The Standard & Poor's 500 Index
  5. Index Investing: The Nasdaq Composite Index
  6. Index Investing: The Wilshire 5000 Total Market Index
  7. Index Investing: The Russell 2000 Index
  8. Index Investing: Other Indexes
  9. Index Investing: Index Funds
  10. Index Investing: Conclusion

Index Investing: The Standard & Poor's 500 Index


The main drawback of the DJIA is that it only contains 30 companies. The S&P 500 improves on the DJIA in this respect by including 500 companies. It is increasingly seen as the benchmark of the U.S. stock market. In fact, the performance of most equity managers is pegged against the S&P 500.

Created By: Standard and Poor\'s Index Services
Number of Companies: 500
Types of Companies: The S&P 500 tries to cover all major areas of the U.S. economy. It is not the 500 largest companies, but rather the 500 most widely held companies - chosen with respect to market size, liquidity and industrial sector.
Selection Criteria: Components are chosen by the S&P Index Committee. Anywhere from 25-50 changes are made every year because of mergers or fallouts à la Enron. International companies have been included in the past, but only U.S. companies will be added in the future.
How it\'s Calculated: The S&P 500 is a market capitalization-weighted index. This means every stock in the index is represented in proportion to its market capitalization.

Advantages: The S&P 500 is one of the best benchmarks in the world for large cap stocks. By including 500 companies, it offers great diversification and accounts for approximately 70% of the U.S. market. The performance of the S&P 500 is considered one of the best overall indicators of market performance and a mutual fund manager\'s goal is to beat it.
Disadvantages: The top 45 companies comprise more than 50% of the index\'s value. Another disadvantage is that there\'s very little foreign content.
Investing: The S&P 500 has several index funds that track it, most notably Vanguard\'s Standard & Poor\'s Depository Receipts (spiders) is the Exchange-Traded Fund (ETF) that tracks the S&P 500.
Index Investing: The Nasdaq Composite Index

  1. Index Investing: Introduction
  2. Index Investing: What Is An Index?
  3. Index Investing: The Dow Jones Industrial Average
  4. Index Investing: The Standard & Poor's 500 Index
  5. Index Investing: The Nasdaq Composite Index
  6. Index Investing: The Wilshire 5000 Total Market Index
  7. Index Investing: The Russell 2000 Index
  8. Index Investing: Other Indexes
  9. Index Investing: Index Funds
  10. Index Investing: Conclusion
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RELATED FAQS
  1. What are the pros and cons of using the S&P 500 as a benchmark?

    Learn about the advantages and disadvantages of using the S&P 500 as a benchmark for portfolio performance, and understand ... Read Answer >>
  2. What is the average annual return for the S&P 500?

    See the historical performance of the S&P 500 Index, and examine a number of factors that affect an investor's actual return ... Read Answer >>
  3. How does a point change in a major index effect its equivalent exchange-traded fund?

    The S&P 500 and Dow Jones Industrial Index (DJIA) are two of the most well-known indexes tracking the movement of the ... Read Answer >>
  4. How are S&P 500 index components weighted?

    Learn about how components of the S&P 500 are weighted, and how this calculation favors certain stocks in being more representative ... Read Answer >>
  5. What's the difference between the Dow Jones Industrial Average and the S&P 500?

    The major difference between these two indexes is that the Dow Jones Industrial Average (DJIA) includes a price-weighted ... Read Answer >>
  6. How do indexes determine which stocks are removed or added to them?

    Stock indexes are formed based on the kinds of stocks or financial securities they want to track. For example, the Standard ... Read Answer >>

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