What is the S&P 500?

The S&P 500 is one of the most common financial benchmarks that there is. However, unless you are familiar with financial jargon and vernacular, it might seem like something you couldn’t care less about. But let me explain why you would know what it is and why you should care about the S&P 500.

What is the S&P 500?

The S&P 500 is simply a grouping of the 500 largest companies listed on any stock exchange in the United States.

The letters “S” and “P” stand for Standard and Poor’s. 

This index (or bucket) of stocks was started in 1957.

The S&P 500 is known largely throughout the financial world as the best benchmark for how well the overall stock market is doing. That is largely because there are so many companies in it.

This index is a market cap index. Which means that it is weighted on the overall size of the companies (the number of outstanding shares multiplied by the share price). This might sound technical but it is a better representation of the overall stock market than the Dow Jones Industrial Average (which is a price weighted index).

The companies on the S&P 500 index change somewhat. However, there are several companies that have been on it for a really long time including:

• Proctor and Gamble
• Coca Cola
• Johnson and Johnson
• Whirlpool
• JPMorgan Chase
• General Electric
• IBM
• Exxon Mobil
• 3M
• General Mills

Overall the companies on the S&P 500 look something like this when you consider their weights (although it changes daily):

For an up to date list of the companies listed on this index, click here.

Why Should You Care About it?

You should care about what this index does because it will:

• Help you benchmark how well the overall stock market is doing.
• Help you benchmark how well your portfolio is doing compared to the overall market.

Is the index up 10% this year? Awesome!

Is the index down 5% this year? Not so awesome.

If the index is up 6% and your portfolio is up 8% then you are doing great and outperforming the market! But if your portfolio is only making 2% then you are underperforming the market.

Final Thoughts

The S&P 500 is the bread and butter of the finance world. You have to know how well (or poorly) it is doing to begin to assess how well (or poorly) you are doing.

So next time you hear that the index is up or down, don’t ignore that information. Because now you know what it means!

You can do this!

Until next time!