Investing Advice

S&P 500 (Standard and Poor’s, a McGraw-Hill Company)

The S&P 500 is thought of as representing the 500 largest American companies. Yes, they are primarily all large-cap corporations (many have market caps under $1 billion), but they are not necessarily the largest companies, ranked by sales, profits, assets, net worth, or their number of employees. The majority of these companies would certainly fall into one or more of these categories though. The S&P 500 represents about 80% of the total value of the American stock markets.

Created in 1928 with just 90 stocks, the S&P was increased to 500 in 1950. The index includes about 375 companies listed on the NYSE, a few from the AMEX, about 75 from the NASDAQ, and some foreign corporations whose operations are reflected in the U.S. economy. The makeup of the list of companies is changed throughout the year as may be necessary to maintain the desired mix.

Companies may be de-listed if they do not maintain their financial strength. The S&P committee strives to keep the membership exclusive to big, healthy companies.

The most common yardstick of stock portfolios, this index is calculated on a "market-cap weighted" basis, so that companies with the largest total value of stock have the greatest influence. The effect of dividends is not included in the reported number, so investor’s total return is always greater than the percentage return of the index.

10 companies make up about 24% of the S&P 500 market cap, and so about 20% of the entire U.S. market. They are GE, Microsoft, Exxon/Mobil, Pfizer, Citigroup, Wal-Mart, AOL Time-Warner, Intel, AIG, and IBM

Other Stock Market Basics Topics:

  1. What is a stock market index?
  2. Dow Jones Industrial Average
  3. S&P 500 (Standard and Poor’s, a McGraw-Hill Company)
  4. Other S and P Indexes
  5. The NASDAQ
  6. Wilshire Indexes
  7. Barra Indexes
  8. Russell (Frank) Indexes, Covering the Nasdaq stocks
  9. EAFE Index

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