The term S&P 500 gets thrown around a lot but few know what it actually is. Well, you’re in luck! This article will be a way to educate you on the S&P 500 what it is, the terms that follow it, and the different stocks that are included in this market index. Here is a full educational tour of the S&P 500.
What is the S&P 500?
The S&P 500 is a stock market index that tracks the performance of the top 500 largest stocks based in the US. Unlike bonds and stocks, the S&P 500 is a collection of different companies that make up an investable financial security, also known as a fund or an index. Different specialties of the S&P 500 are similar but follow different sectors of the market, like healthcare, technology, energy, and industrials.
How does the S&P 500 index work?
The S&P 500 index is market cap weighted, meaning that larger companies have a bigger impact and influence on how the index moves like Microsoft, Apple, and Amazon. There are also requirements companies must reach before being eligible for the index, companies need to be based in the US and must have a market cap space of 20.5 billion or more (market cap refers to the size of the company, this is calculated by the number of shares in the company multiplied by the price per share), etc. These strict regulations allow for a less risky and more accurate representation of the total market.
Why are there different variations of the S&P 500?
The S&P 500 index is a generalization of the top 500 stocks, so these different variations are ways to diversify a person’s investments within certain sectors and for different purposes instead of leaving it to a broad scale of the top 500 stocks. Here are some examples of the different S&P 500 types and the reasons for them.
Global scale investing
- Name: S&P Global 1200
- Tracks large-scale companies worldwide
Ethical Investing
- Name: S&P 500 ESG Index
- An index that excludes all companies that are involved in controversial industries, weapons, tobacco, and those that include bad ESG ratings.
- Environment, Social, and Government Risks (ESG), assesses how a company is run, and how it impacts people and the environment.
Focus on different sectors of the market
- Name: S&P 500 Energy index and S&P 500 Information Technology Index
- Energy Index: Focuses on energy companies like Chevron, Valero Energy, or ExxonMobil
- ITI: focuses on tech companies like Nvidia, Apple, or Microsoft
Conclusion
This article was written for educational purposes and should not be taken as investing advice. If you do end up investing in the stock market, act with caution. Although the S&P 500 index is historically known to be a strong long-term option for investment, it is always important to manage your risks and do your research.
Sources:
https://www.spglobal.com/spdji/en/indices/equity/sp-global-1200/#overview
https://www.investopedia.com/ \https://finance.ec.europa.eu/sustainable-finance/tools-and-standards/esg-rating-activities_en#:~:text=Ratings%20on%20environmental%2C%20social%20and,on%20people%20and%20the%20environment.
https://www.nerdwallet.com/article/investing/what-is-sp-500#:~:text=The%20S%26P%20500%20tracks%20the,by%20its%20current%20stock%20price.
