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 S&P 500 is designed to reflect the U.S. equity markets and, through the markets, the U.S. economy. It’s widely regarded as the best single measure of large-cap U.S. stocks, and, like the Dow, has become synonymous with “the market.” The index includes 500 top U.S. companies in leading industries, and captures about 80% coverage of available market capitalization. Created in 1957, it was the first U.S. market-cap-weighted stock market index. While the Dow used to be the main gauge of economic health in the U.S., the S&P 500 has become the leading stock index because of its broader scope.

The index covers all major sectors of the market, and some of its top constituents (by index weight) include Apple, Microsoft, Facebook, Amazon, Berkshire Hathaway B, Johnson & Johnson, ExxonMobil and J.P. Morgan Chase (current as of Oct. 23, 2017). Although the S&P 500 contains 500 constituents, it may contain greater than 500 “constituent trading lines” since some companies are represented by multiple share classes.

Snapshot

 

Created By:

Created by Standard & Poor’s in 1957. Currently maintained by S&P Dow Jones Indices.

Number of Companies:

500 large-cap companies (market cap of $6.1 billion or greater)

Types of Companies:

The S&P 500 tries to cover all major areas of the U.S. economy.

Selection Criteria:

Components are chosen by the U.S. Index Committee and rebalanced quarterly.

How it's Calculated:

The S&P 500 is a capitalization-weighted index.

 

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 80% of the U.S. market. The performance of the S&P 500 is considered one of the best overall indicators of market performance and many investors and fund managers attempt to outperform the index.

Disadvantages: The index contains only large-cap U.S. companies. As such, may not be the best benchmark for investors who own small-cap stocks and/or foreign companies. Also, the top 50 companies by market capitalization account for about 50% of the index’s value – so they have a larger impact on the index calculation.

Investing: There are several index funds that track the S&P 500, including the popular SPDR S&P 500 ETF Trust (SPY), or “Spider” – the most actively traded ETF by trading volume. You can also trade the e-mini S&P futures contract (ticker symbol ES). (For more, see SPY: SPDR S&P 500 Trust ETF.)


Index Investing: The Nasdaq Composite Index
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