What is S&P 500 Index? (Plain English Definition)
Definition: The S&P 500 is a stock market index tracking 500 of the largest U.S. companies, widely considered the best single measure of U.S. stock market performance.
S&P 500 Index Explained Simply
The S&P 500, maintained by S&P Dow Jones Indices, tracks 500 of the largest publicly traded companies in the United States. It covers approximately 80% of the total U.S. stock market value, making it the most widely followed proxy for the overall U.S. stock market. Companies must meet criteria for market cap, profitability, liquidity, and public float to be included.
The index is market-cap weighted, meaning larger companies like Apple, Microsoft, and Amazon have more influence on the index's movements than smaller members. An S&P 500 committee decides which companies to add or remove, making it a curated index rather than a purely rules-based one.
S&P 500 ETFs are the most popular investment products in the world. The three largest -- SPDR S&P 500 ETF (SPY), iShares Core S&P 500 ETF (IVV), and Vanguard S&P 500 ETF (VOO) -- together hold over $1.5 trillion in assets. For many investors, a single S&P 500 ETF serves as the foundation or entirety of their stock portfolio.
S&P 500 Index Example
Since 1928, the S&P 500 has delivered an average annual return of about 10% including dividends. An investor who put $10,000 in an S&P 500 index fund 30 years ago would have about $174,000 today -- even after weathering the dot-com crash, the 2008 financial crisis, the COVID crash, and the 2022 bear market. This track record is why Warren Buffett has famously bet that a low-cost S&P 500 index fund will outperform most professional money managers over the long term.
Why S&P 500 Index Matters for ETF Investors
The S&P 500 is the benchmark against which most U.S. investment performance is measured. When financial news says the market was up or down, they are usually referring to the S&P 500. For ETF investors, S&P 500 ETFs offer the simplest and most proven path to long-term wealth building. For ETF investors, an S&P 500 ETF is often the single best starting point. It provides broad diversification across 500 companies and all 11 sectors, charges rock-bottom fees (as low as 0.03%), and has a long track record of solid returns. While a total stock market ETF offers even broader diversification by including small and mid-cap stocks, the performance difference between the two is typically negligible over long periods.
S&P 500 Index vs Index
| S&P 500 Index | Index |
|---|---|
| The S&P 500 is a stock market index tracking 500 of the largest U.S. companies, widely considered the best single measure of U.S. stock market performance. | See full definition of Index |
While s&p 500 index and index are related concepts, they serve different purposes in the world of ETF investing. Understanding both terms helps you make more informed decisions about which funds to include in your portfolio and how to evaluate their performance.
Related Terms
Deepen your understanding of ETF investing by exploring these related concepts:
Index
An index is a standardized collection of securities that represents a specific segment of the financial market, used as a benchmark to measure performance.
Index Fund
An index fund is a type of investment fund designed to match the performance of a specific market index, such as the S&P 500.
Benchmark
A benchmark is a standard index or measure used to evaluate the performance of an investment fund or portfolio.
Capitalization-Weighted Index
A capitalization-weighted index assigns more weight to companies with larger market values, so bigger companies have more influence on the index's performance.
Nasdaq
The Nasdaq is a major U.S. stock exchange known for listing technology and growth-oriented companies, and home to the Nasdaq-100 index.
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