What Is the S&P 500?

Written by Sam Levine, CFA, CMT
Senior Writer

Fact-checked by Dayana Yochim
Senior Editor

Edited by Carolyn Kimball
Former Managing Editor

December 11, 2024

Fact Checked

Sam Levine, CFA, CMT
Senior Writer

Sam Levine holds over 30 years in the investing field as a portfolio manager, financial consultant, investment strategist, and writer. He was a contributing editor at BetterInvesting Magazine and a contributor to The Penny Hoarder and other media outlets.

See full bio

The Standard & Poor's 500 (S&P 500) Index tracks the performance of 500 of the largest American companies (though it actually includes 503 stocks, due to several companies with two share classes). Known for its focus on industry leaders like Apple and Microsoft, almost a third of its value comes from just 10 companies.

The S&P 500 index plays a central role in how investors view the U.S. economy. In this guide, I'll break down the basics of the S&P 500, explain how it’s constructed, and highlight why many investors choose low-cost index funds that follow its performance.

About the S&P 500

The S&P 500 measures the performance of the U.S. stock market. Many exchange-traded funds (ETFs) seek to mirror the index. It’s not very diversified, being heavily weighted in technology stocks. For example, at the end of August 2023, Apple accounted for 7.1% of the S&P’s value.

The index is made of 500 U.S. companies selected by a committee from S&P Dow Jones Indices. The stocks added to the index must meet certain criteria of liquidity and size and have positive earnings over the most recent quarter and the summed past four quarters. Some companies issue different classes of shares, which is why the S&P 500 actually has 503 stocks.

The index is rebalanced every quarter, which is when a stock might be added or removed from the index. The committee will only change a few companies each year, which makes investing in S&P 500 index funds very tax-efficient.

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S&P 500 annualized returns

Here are the annualized returns (that’s just a fancy average) of the S&P 500, assuming dividends are reinvested, as of the end of August 2023:


1 year	15.94%
3 year	10.52%
5 year	11.12%
10 year	12.81%

You shouldn't expect to earn 10-16% on your stock money every year. Over the last 10 calendar years, the highest total return was a whopping 31.49% in 2019 and the lowest was a drop of 18.41% in 2022.

Financial planners typically expect the S&P 500 to average 9-10% return per year, but that’s over the super long term – think 20 years or more.

One more thing: Mutual fund managers find it very difficult to consistently beat the S&P 500. According to S&P Global, the folks that manage the S&P 500, only 8.6% of U.S. large cap funds outperformed the index over the last 10 years. That implies that most investors will be better off buying low cost index funds instead of actively managed funds.

Bottom line: The S&P 500 includes many of the largest and most admired American publicly traded companies, and buying an S&P 500 index fund is a perfectly reasonable way to “invest in America.” But it is concentrated in technology, thanks to how much those stocks have boomed and the way the index is constructed.

article Did you know

Warren Buffett, one of the greatest stock investors in history, wrote that he put instructions in his will to place 90% of the money in a trust for his wife into an S&P 500 index fund, with the rest invested in short-term government securities.

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About the Editorial Team

Sam Levine has over 30 years of experience in the investing field as a portfolio manager, financial consultant, investment strategist and writer. He also taught investing as an adjunct professor of finance at Wayne State University. Sam holds the Chartered Financial Analyst and the Chartered Market Technician designations and is pursuing a master's in personal financial planning at the College for Financial Planning. Previously, he was a contributing editor at BetterInvesting Magazine and a contributor to The Penny Hoarder and other media outlets.

Dayana Yochim is a former Senior Writer/Editor at Reink Media Group who has written about personal finance and investing for more than 20 years. Her work has appeared in outlets including HerMoney.com, NerdWallet and the Motley Fool, and has been syndicated nationally. Dayana has also been a guest expert on "Today" and Good Morning America.

Carolyn Kimball is a former managing editor for StockBrokers.com and AdvisorSearch.org (formerly investor.com). Carolyn has more than 20 years of writing and editing experience at major media outlets including NerdWallet, the Los Angeles Times and the San Jose Mercury News. She specializes in coverage of personal financial products and services, wielding her editing skills to clarify complex (some might say befuddling) topics to help consumers make informed decisions about their money.