S&P 500: A stock market index considered a measure of U.S. stock market performance, comprising around 500 of the largest American companies.
Not an investment: The S&P 500 is a market index, not a direct investment option. However, you can invest in companies within the S&P 500 via stocks or funds.
Index Funds: By investing in an S&P 500 index fund, your investment performance will mirror the index.
Companies Included
Companies must meet criteria such as:
A market capitalization of at least $15.8 billion.
U.S. based, structured as a corporation offering common stock.
Listed on a U.S. exchange; includes REITs (Real Estate Investment Trusts).
Positive earnings over the most recent and past four quarters.
Investment Options
You cannot buy S&P 500 stock directly.
Popular Index Funds:
Vanguard 500 Index Investor Shares (VFINX)
Fidelity 500 Index Fund (FXAIX)
Schwab S&P 500 Index Fund (SWPPX)
T. Rowe Price Equity Index 500 Fund (PREIX)
Measurement
Tracks the market capitalization of included companies.
Calculated by multiplying stock shares by current stock price.
Companies are weighted in the index based on their market cap relative to the total index market cap.
Movements in share prices affect the index value, especially those of companies with larger weights.
Average Return
Historical average annual total return of about 10%, unadjusted for inflation.
Returns can vary significantly each year (e.g., -37% in 2008, +26% in 2009).
Comparison with DJIA
Dow Jones Industrial Average (DJIA):
Includes 30 large, leading companies.
Weighted by share price and covers nine sectors (compared to S&P 500's 11).
Calculated by adding share prices, adjusting for weight, and dividing by Dow Divisor.
Authors & Contributors
Chris Davis: Managing Editor, expertise in stock market and investment strategies.
Arielle O'Shea: Head of Content for Investing & Taxes, expertise in retirement planning and investment management.
Additional Resources
Guides on how to invest in stocks, understanding average stock market returns, and differences between various stock market indices.