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What Is the S&P 500?

The S&P 500 is a stock market index that is viewed as a measure of how well the stock market is performing overall. It includes around 500 of the largest U.S. companies.

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Chris Davis

Managing Editor

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12 years of experience

Expertise

• Brokerage accounts
• stock market
• cryptocurrency

Chris Davis is a Managing Editor on the Investing team. He has passed the Series 65 (Uniform Investment Adviser Law Exam) and covered the stock market, investing strategies, investment accounts and cryptocurrency. His work has appeared in The Associated Press, The Washington Post, MSN, Yahoo Finance, MarketWatch, Newsday and TheStreet.

Published in

Managing Editor

Chris Davis is a Managing Editor on the Investing team. He has passed the Series 65 (Uniform Investment Adviser Law Exam) and covered the stock market, investing strategies, investment accounts and cryptocurrency. His work has appeared in The Associated Press, The Washington Post, MSN, Yahoo Finance, MarketWatch, Newsday and TheStreet.

Arielle O'Shea

Head of Content, Investing & Taxes

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19 years of experience

Expertise

• Retirement planning
• investment management
• investment accounts

Arielle O’Shea leads the investing and taxes team at NerdWallet. She has covered personal finance and investing for nearly 20 years, and was a senior writer and spokesperson at NerdWallet before becoming an editor. Previously, she was a researcher and reporter for leading personal finance journalist and author Jean Chatzky, a role that included developing financial education programs, interviewing subject matter experts and helping to produce television and radio segments. Arielle has appeared on the "Today" show, NBC News and ABC's "World News Tonight," and has been quoted in national publications including The New York Times, MarketWatch and Bloomberg News. She is based in Charlottesville, Virginia.

Published in

Head of Content, Investing & Taxes

Arielle O’Shea leads the investing and taxes team at NerdWallet. She has covered personal finance and investing for nearly 20 years, and was a senior writer and spokesperson at NerdWallet before becoming an editor. Previously, she was a researcher and reporter for leading personal finance journalist and author Jean Chatzky, a role that included developing financial education programs, interviewing subject matter experts and helping to produce television and radio segments. Arielle has appeared on the "Today" show, NBC News and ABC's "World News Tonight," and has been quoted in national publications including The New York Times, MarketWatch and Bloomberg News. She is based in Charlottesville, Virginia.

The companies listed on the S&P 500 cover 11 sectors and offer a picture of the health of the U.S. stock market and the broader economy.

What is the S&P 500?

The S&P 500 is a list of about 500 of the biggest companies in the U.S. The S&P 500 is not an investment, it's a market index, which means you can't invest in the S&P 500 itself. You can, however, invest in the companies listed on the S&P 500 through stocks or funds. If you invest in an S&P 500 index fund, your investment will perform about the same as the index.

What companies are included in the S&P 500?

To be eligible for the index, companies must meet certain criteria. Among other things, companies must:

Have a market capitalization — which refers to the total value of the company’s outstanding shares — of at least $15.8 billion.

Be based in the U.S.

Be structured as a corporation and offer common stock.

Be listed on an eligible U.S. exchange. (Real estate investment trusts, known as REITs, are eligible for inclusion.)

Have positive as-reported earnings over the most recent quarter, in addition to over the four most recent quarters added together.

Thanks to this criteria, only the country’s largest, most stable corporations can be included in the S&P 500. The list is reviewed and updated quarterly.

More on the S&P 500: Can you invest in the S&P 500 but leave some companies out?

Brokerage firms

on Charles Schwab's website

on E*TRADE's website

on Vanguard's website

on Fidelity's website

Can you buy S&P 500 stock?

No. The S&P 500 isn’t a company you can buy stock in, but rather a list of companies. So while you can’t buy S&P 500 stock, you can buy shares in an index that tracks the S&P 500. In fact, this is one of the best ways for beginner investors to get their feet wet in the stock market. Here are some of the most popular index funds that track the S&P 500:

Vanguard 500 Index Investor Shares (VFINX)

Fidelity 500 Index Fund (FXAIX)

Schwab S&P 500 Index Fund (SWPPX)

T. Rowe Price Equity Index 500 Fund (PREIX)

» Ready to start investing? You’ll need to set up an online brokerage account. If you don’t already have one, see NerdWallet’s list of the best online brokerages for mutual funds to find an account that’s a good fit.

What does the S&P 500 measure?

The S&P 500 tracks the market capitalization of the roughly 500 companies included in the index, measuring the value of the stock of those companies.

Market cap is calculated by multiplying the number of stock shares a company has outstanding by its current stock price. So, if a company has 2 million shares currently held by shareholders, and the current share price is $5, then the company’s market cap is $10 million. In simpler terms, the company has a value of $10 million.

The S&P 500’s value is calculated based on the market cap of each company, adjusted to consider only the number of shares that are traded publicly. However, each company in the S&P 500 is given a specific weighting, obtained by dividing the company’s individual market cap by the S&P 500’s total market cap. Thus, companies with larger market caps are weighted more heavily than those with smaller market caps.

To arrive at the number we’re accustomed to seeing on the S&P 500 ticker, the index’s total market cap is divided by a proprietary divisor. As the share prices of S&P 500 companies move throughout the day, each movement has an impact on the value of the index, though companies near the top of the list have a substantially larger impact than those near the bottom.

» View the best-performing S&P 500 ETFs

What is the average return of the S&P 500?

For nearly the last century, the average annual total return of the S&P 500 (which includes dividends) has been about 10%, not adjusting for inflation. However, keep in mind this doesn’t mean you can expect to get a 10% return on your investment in an S&P 500 index fund every year.

In 2008, for example, the S&P 500 finished the year down a staggering 37%. The following year, it finished up 26%. Earning a 10% average annual total return requires a long-term investing mindset and a willingness to ride out market volatility. (Learn more about average stock market returns.)

What’s the difference between the Dow Jones Industrial Average and the S&P 500?

The DJIA, or simply the Dow, is another stock market index that includes large, established companies. However, there are a few key differences.

The Dow consists of only 30 companies, each of which is considered a leader in its respective industry.

The Dow is weighted based on the share price of each company, not the market cap, which means companies with higher share prices are given greater weight. The index is calculated by adding up the share prices of all 30 companies, adjusting for weight, and then dividing by a predetermined constant, called the Dow Divisor.

The Dow represents nine sectors, compared with the 11 found in the S&P 500.

Both the S&P 500 and the Dow include companies that are regarded as the country’s healthiest corporations. If you’re interested in purchasing stock from any of these companies (as opposed to shares of index funds), explore our guide on how to buy stocks to get started.

Neither the author nor editor held positions in the aforementioned investments at the time of publication.

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