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.|
Investopedia explains the definition of exchange-traded mutual ...
A distribution of a portion of a company's earnings, decided ...
A ratio developed by Nobel laureate William F. Sharpe to measure ...
A security that tracks an index, a commodity or a basket of assets ...
A method for calculating the value of an asset using the last ...
A nickname given to Africa's growing economies.
Learn the differences between points, ticks and pips and how each are used by investors to measure price changes in stocks, ...
Learn how the rise in popularity of passive ETFs and mutual funds tracking indexes has increased the correlation among stocks, ...
Find out more about the turnover ratio, what the turnover ratio measures and what a high turnover ratio indicates about an ...
Find out about active asset management, passive asset management, how these strategies are utilized and the differences between ...