Standard and Poor’s 500

The Standard and Poor’s 500, or as it is more commonly referred to S&P 500, is a stock market index that tracks the performance of 500 of the largest companies listed on stock exchanges in the United States. It is one of the most followed indices and accounts for approximately 80% of the total market capitalization of U.S. public companies.

The index traces its origins back to 1860, however, the version that we see today really came about in 1957. It was at that time that it was expanded to 500 companies.

A committee assesses a company’s merit in order to be added or subtracted from the index. The committee uses criteria like market capitalization, public float, volume, and domicile to assess company’s inclusion or exclusion.

How this index moves is a very good indicator of how the overall U.S. economy is doing. Again, as it represents approximately 80% of public companies, when it is up the economy is typically growing and when it is down the economy is struggling.

There are many investment products that simply track this index and I’m a big believer in low cost options that do this. At a minimum though, you should pay attention to this index as a small investor. It will help you.

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