S&P 500

What is the S&P 500?


The S&P 500, or the Standard & Poors 500, is a market capitalization based US stock equity index made up of 500 of the largest and most widely held companies.  There is a common misconception that the S&P 500 includes the top 500 stocks in terms of market capitalization; however, market cap is only one component; the S&P committee reviews industry and liquidity as additional criteria.  "Leading companies in leading industries" is the guideline they use to make their selection.  There are a few ADRs which trade on the S&P; however, the committee has indicated that only US based companies will be allowed to join the S&P going forward.

The S&P is typically considered the leading barometer of economic health of the US economy as it's value covers nearly 70% of the US equity market.  It is preferred over the Dow Jones due to the fact that there are only 30 stocks in the DJIA

It is unreasonable to expect an investor to buy all 500 stocks on the S&P to gain exposure to this index.  The S&P is the most widely mirrored index by mutual funds, with the Vanguard 500 being the most popular and largest in the world.  Additionally, with the advent of ETFs, the S&P spider (SPY) is a very efficient way of buying into the index. 
Tim Ord
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