What is the S&P 500?

The S&P 500 is a stock market index that tracks 500 of the largest publicly listed companies in the United States. It is maintained by S&P Global and is widely considered the best single measure of the American stock market.

Which companies are in it?

Companies like Apple, Microsoft, Amazon, Johnson and Johnson, and JPMorgan Chase. To be included, a company must meet certain criteria. It must be listed on a US exchange, have a market cap above a set threshold, be profitable, and have sufficient trading volume. A committee reviews the composition regularly and makes changes when needed.

How is it weighted?

The S&P 500 is weighted by market cap. This means the largest companies have the most influence on the index. If Apple one of the biggest companies in the world has a strong day, it will move the index more than a smaller company having the same kind of day.

Why do investors care so much about it?

Because it is the benchmark. When people talk about "the market," they usually mean the S&P 500. Financial professionals measure their performance against it. If your portfolio consistently beats the S&P 500, you are doing exceptionally well. Most actively managed funds do not.

What has it returned historically?

Over the past century the S&P 500 has returned an average of roughly 10% per year, including dividends. That does not mean every year is positive. Crashes happen. But over long periods it has rewarded patient investors more reliably than almost any other asset class.