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

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

Related Articles
  1. Investing

    S&P 500 Vs. Dow Jones ETF: Which is a Safer Investment? (SPY,DIA)

    Learn about why the risks of investing in the ETFs that track the S&P 500 and the Dow Jones Industrial Average are very similar for investors.
  2. Investing

    The Top 3 ETFs to Track the Dow Jones Industrial Average for 2016

    Learn about exchange-traded funds that track the Dow Jones Industrial Average. Read how compounding impacts the results of inverse and leveraged ETFs.
  3. Investing

    The Pros and Cons of Indexes

    Learn about the advantages and disadvantages of stock indexes and passive index funds. Discover how there is an opportunity cost to using index funds.
  4. Insights

    An Introduction to Stock Market Indices

    Investopedia explains the five most talked about indices and what makes them all different.
  5. Insights

    What's a Market Index?

    A market index combines several stocks to create one aggregate value that’s used to measure a market’s or sector’s performance.
  6. Investing

    S&P 500 Index: A Performance Analysis of Long-Term Returns

    Discover how to gain insight into the returns generated by the S&P 500 Index over the long term and how this can assist your investment goals.
  7. Investing

    How the S&P 500 and Russell 2000 Indexes Differ

    The S&P 500 and Russell 2000 are used as benchmarks for broader segments of the U.S. stock market. Each index has its own approach to measuring stocks.
  8. Investing

    S&P 1500 Index: A Revenue Case Study

    Learn what comprises the S&P 1500 and how analysts use revenue trends to benchmark against the performance of a portfolio or single stock investment.
  9. Investing

    What are Index Funds?

    An index fund is a type of mutual fund that is tied to a broad stock index like the S&P 500 or the Dow Jones Industrial Average, instead of being handpicked and managed by an investment manager. ...
  10. Investing

    4 Strategies to Short the S&P 500 Index (SPY)

    Learn the advantages and disadvantages of methods available to investors with the objective of making a bearish bet on the S&P 500 Index.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center