Curious about the S&P 500? Here’s an overview of this major market index, along with some options for investing in funds that track it.
What is the S&P 500?
The S&P 500 is an index, or a group of stocks that share one or more common traits. In this case, those shared characteristics include a high number of readily tradeable shares and size—the index is made up of stocks from about 500 of the US’s largest companies. (As of January 2025, there are about 500 companies represented in the index, but this is subject to change.) Because these stocks come from sectors across the market, changes to the index’s value could tell you a lot about the performance of the stock market as a whole. The S&P 500’s value is determined by the combined average performance of the stocks within the index, with more weight given to larger companies. When the S&P 500’s value rises, that means enough stocks increased in value enough to bring up the total average value.
The S&P 500 started as an index of 233 companies in 1923, chosen by the Standard Statistics Company (now known as Standard & Poor’s). In 1957, S&P expanded it to include about 500 companies. Today, the S&P 500 index includes about 500 companies and provides a big-picture view of what’s happening in the stock market each trading day—without investors having to check the performance of hundreds of different stocks.
How does the S&P 500 work?
The S&P 500’s value depends on the performance of the stocks within it. The stocks in the index are chosen partly for those companies’ market capitalization, or total company value. Typically, that value is determined by multiplying the total number of a company’s outstanding shares by the price per share. The S&P 500, however, instead uses something called “free float” or “public float” market capitalization. That’s when certain shares, namely non-trading shares owned by institutional investors, government agencies, and company executives and founders, are subtracted from the total outstanding shares.
The unadjusted total market caps of companies tracked by the S&P 500 can vary widely. Some companies in the S&P 500 have a total market cap of a few trillion dollars, while others have market caps of about $20 billion. The S&P 500 weighs its value so that changes to the stock prices of companies with a larger float-adjusted market cap have a bigger impact on the index’s value than stock price changes for companies with a smaller float-adjusted market cap. Said another way: A trillion-dollar company’s stock price change would have a greater effect on the S&P 500’s value than a stock price change for a company in the index worth $20 billion.
What companies are in the S&P 500?
The companies in the S&P 500 include major corporations such as:
- Apple
- Nvidia
- Microsoft
- Amazon
- Meta
- Tesla
- Alphabet (both classes of their stock: GOOGL and GOOG)
- Broadcom
- Berkshire Hathaway
These all have a sizable enough market cap to be considered a large-cap stock. As of January 2025, a company must have an unadjusted market capitalization of at least $20.5 billion to be eligible to join the S&P 500.2 This threshold is reviewed at the start of every calendar quarter to ensure it reflects the market. If a company falls below this value after joining the S&P 500 index, it may be allowed to stay on the index if it meets other index requirements, such as having a security level float-adjusted market capitalization that’s at least 50% of the current minimum market cap threshold. The list of companies in the S&P 500 can change at any time, like in response to market and corporate news. If a company goes private or bankrupt, it’s removed from the S&P 500 and replaced with a different eligible company.
The S&P 500 vs. other major indexes
Here’s how the S&P 500 compares to other major market indexes.
S&P 500 vs. DJIA
The Dow Jones Industrial Average (DJIA), aka the Dow, is another closely followed stock market index. Like the S&P 500, it tracks the stock performance of large, well-established companies. One major difference is that the DJIA is composed of just 30 companies and excludes firms in the utilities and transportation sectors; those are represented in other Dow Jones indexes. The S&P 500, meanwhile, tracks many more companies across all major US sectors. Still, there’s a lot of overlap between the 2 indexes because all the companies in the DJIA are typically in the S&P 500 too.
Another difference is how each index’s value is calculated. The DJIA gives more weight to the highest-priced stocks, whereas the S&P 500 gives more weight to the largest market cap companies, using the free float formula.
Both indexes are published by the joint venture, S&P Dow Jones Indices.
S&P 500 vs. Nasdaq
The Nasdaq Composite Index,3 often referred to as the Nasdaq, tracks the value of more than 3,000 companies, almost all the ones listed on the Nasdaq stock exchange. The index includes both US and international companies, whereas the S&P 500 tracks only domestic stocks. The Nasdaq Composite index also tracks stocks predominantly of technology companies of varying sizes, whereas the S&P 500 tracks only large-cap companies but across all sectors.
S&P 500 vs. Russell 2000
The Russell 20004 tracks the performance of about 2,000 small-cap publicly traded companies in the US. The average market cap for a Russell 2000 company is just shy of $3 billion, and the largest companies on the index hit a market cap of over $10 billion, so these companies are valued a lot less than companies in the S&P 500. Each year, the index gets evaluated and altered. Stocks for companies that have become too large get taken out of the index to ensure it remains a true measure of small-cap domestic companies’ performance.
Why is the S&P 500 important?
The S&P 500 is important because the stocks in this index make up roughly 80% of the total US equity market. By checking this index, investors can get a quick gauge of what’s happening in US markets. Since the S&P 500 includes hundreds of companies from many different sectors, it also offers a clue about the US economy’s health.
Plus, many investors buy shares in funds that try to mimic the performance of the S&P 500. That’s because it’s a simple option offering broad exposure to the market without having to buy and sell a lot of stocks.
Historical performance of the S&P 500
Since its launch in 1957, the S&P 500 has posted an average return of roughly 10% a year.5 This doesn’t mean that the S&P 500 reliably provides returns of 10% every year. Stock market performance is unpredictable, and some years are much better than others.
In fact, the S&P 500 has seen considerable losses, like during the financial crisis in the late 2000s. It dropped 48% from August 2008 to March 2009. Still, these downturns are often balanced out by years with strong performance like the 23% increase the index notched in 2024.6 Remember that past performance is no guarantee of future results.
How to invest in the S&P 500
You can’t buy shares of the S&P 500 directly: It’s not a security itself. However, you can invest in mutual funds or exchange traded funds (ETFs) that aim to track the performance of the S&P 500. These are called index funds because they mimic the index.
The index fund’s manager includes shares of all S&P 500 companies in the fund and weigh it to match the actual S&P 500. While you could try to do the same thing yourself by buying shares of all the companies in the S&P 500, it would mean be a lot more upfront work and maintenance to keep your portfolio’s balance in sync with the S&P 500. If you’d like to invest in a S&P 500 index mutual fund or an ETF, you need an investment account like a 401(k), 403(b), IRA, or brokerage account. You could open an IRA or brokerage account through a brokerage firm, like Fidelity.