What Is the S&P 500 Index?
41
shares

What Is the S&P 500 Index?

profileSudhan P
41
shares

S&P 500 Index

The S&P 500 index (or Standard & Poor’s 500 Index) includes 500 of the top US companies in leading industries.

The index is weighted by market capitalisation, which refers to a company’s total number of outstanding shares multiplied by its share price.

The S&P 500 index, which was created in 1957, is considered to be an excellent proxy to the US stock market performance.

It was also the first US market capitalisation-weighted stock market index.

According to Standard & Poor’s, as of 31 January 2020, the S&P 500 index had 505 index constituents to be exact. This may come as a surprise to investors who have always believed that the index only has 500 stocks.

To be added to the S&P 500 index, a company must meet the following criteria:

  • It must be a US company;
  • The market capitalisation must be US$8.2 billion or higher;
  • It must have a public float (shares that are in the hands of the public, as opposed to management, for example) of at least 50% of its outstanding shares;
  • It must have positive as-reported earnings in its most recent quarter, and over the most recent four quarters summed up; and
  • The stock must have adequate liquidity and must trade for a reasonable share price.

REITs are eligible to be included in the index, but not ETFs.

As of 31 January 2020, the top 10 constituents of the S&P 500 index are:

ConstituentTicker SymbolSector
Microsoft CorpMSFTInformation Technology
Apple IncAAPLInformation Technology
Amazon.com IncAMZNConsumer Discretionary
Facebook Inc AFBCommunication Services
Berkshire Hathaway BBRK.BFinancials
Alphabet Inc AGOOGLCommunication Services
Alphabet Inc CGOOGCommunication Services
JP Morgan Chase & CoJPMFinancials
Johnson & JohnsonJNJHealth Care
Visa Inc AVInformation Technology

Together, they take up 23.8% of the index.

Based on the GICS sector classification, information technology (at 24.2%) takes up most of the S&P 500, followed by healthcare (13.8%), and financials (12.6%).

US S&P500 index sector breakdown (as of 31 Jan 2020)
Source: S&P (Data as of 31 Jan 2020)

Over the past 10 years, the S&P 500 index has produced an annualised return of 11.8%.

S&P 500 10-year return chart
Source: S&P

As of 20 February 2020, the index had a one-year return of 21.1%.

If you wish to invest in the S&P 500 index, you can do so by purchasing an ETF that tracks the index.

The Vanguard S&P 500 ETF is one way to gain exposure to the index. It has an expense ratio (fees charged by ETF managers) of 0.05%, which is very low by any standard.

Have Burning Questions Surrounding The Stock Market?

Why not check out Seedly’s QnA and participate in the lively discussion regarding stocks!

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. 

profile
About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
You can contribute your thoughts like Sudhan P here.

Still have more questions after reading the article? Fret not, ask our community here!

Stay updated with the latest finance tips!
Receive bite-sized finance on Telegram here.

What's Popular

    • Loading articles
    • Loading articles
    • Loading articles
    • Loading articles
    • Loading articles
Comments
41
shares

What's Popular

    • Loading articles
    • Loading articles
    • Loading articles
    • Loading articles
    • Loading articles

Still have more questions after reading the article? Fret not, ask our community here!