S&P 500
Definition
A stock market index tracking 500 of the largest US publicly traded companies, widely regarded as the best single gauge of US large-cap stock market performance.
The S&P 500 is the most widely followed stock market benchmark in the world. Maintained by S&P Dow Jones Indices, it includes 500 leading US companies weighted by market capitalization, representing approximately 80% of the total US stock market value.
Companies in the S&P 500 are selected by a committee based on market cap ($18B+ minimum), profitability, liquidity, and sector representation. The index is market-cap weighted, meaning the largest companies have the most influence. As of recent years, the top 10 stocks (mostly tech) represent over 30% of the index.
The S&P 500's historical performance is the most cited benchmark in investing. Since 1957, it has returned approximately 10.5% annually including dividends, or about 7-8% after inflation. This long-term track record is why index fund pioneer John Bogle advocated simply buying and holding the S&P 500.
Most actively managed funds compare their performance to the S&P 500, and most fail to beat it over long periods. This reality fueled the index investing revolution — why pay a fund manager 1%+ per year when a 0.03% S&P 500 index fund is likely to outperform them?
For international investors, the S&P 500's heavy technology weighting and US-centric composition means it doesn't represent the global economy. A truly diversified portfolio adds international stocks (MSCI EAFE, emerging markets) alongside the S&P 500.
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Frequently Asked Questions
How do I invest in the S&P 500?
Buy an S&P 500 index fund (ETF or mutual fund). Popular options include VOO (Vanguard, 0.03% expense ratio), SPY (State Street, 0.09%), and IVV (iShares, 0.03%). You can purchase these through any brokerage account, including IRAs and 401(k)s.
Does the S&P 500 include all US stocks?
No — it includes about 500 of the largest US companies, representing ~80% of market value. The Total Stock Market index (like VTI) covers all US stocks including mid and small caps, providing broader but similar exposure. Performance between the two is very similar historically.