S&P 500 Index

Written By
Paul Tracy
Updated April 28, 2021

What is the S&P 500 Index?

The S&P 500 Index is a diverse index that includes 500 American companies that represent over 70% of the total market capitalization of the U.S. stock market

How Does the S&P 500 Index Work?

First developed in 1923, the index initially contained 233 stocks. However, in 1957 it was modified to include a diversified basket of 500 common stocks.

The S&P 500 is not comprised of simply the 500 largest U.S. stocks. Instead, it consists primarily of leading companies from a wide variety of different economic sectors. The index started with 23 identified sectors, but today contains over 100 unique sectors. Most analysts choose to use the S&P as their preferred benchmark index thanks to its diversified sector coverage as well as its market value weighting. Because the index is weighted by market capitalization, the largest firms have the greatest impact on the S&P's value.

Why Does the S&P 500 Index Matter?

The S&P 500 index is probably the most commonly referenced U.S. equity benchmark. Many regard it as the single best way to track the overall performance of the largest and most dominant American companies.

Because of the index's high market cap requirements, the S&P 500 does reflect the performance of some of the smaller, but faster growing, companies on the market. A number of different mutual funds track the performance of the S&P 500. However, many investors find that the most convenient and cost-effective way to trade this index is to purchase a SPDR (Spider). A spider is an exchange-traded fund (ETF) that tracks the S&P 500. It has an extremely low expense ratio and can easily be bought or sold on the open market just like a regular common stock.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about S&P 500 Index.
Be the first to ask a question

If you have a question about S&P 500 Index, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about S&P 500 Index, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about S&P 500 Index

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms