What is the S&P 500

The S&P 500 is a stock market index that tracks the stocks of 500 U.S. companies. It includes companies across 11 sectors to offer a picture of the health of the U.S. stock market and the broader economy. 

Investors use it as the benchmark of the overall market, to which all other investments are compared.

Can you buy the S&P 500 stock?

It isn’t a company itself, but rather a list of companies — otherwise known as an index. So while you can’t buy S&P 500 stock, you can buy shares in an index.

In fact, this is one of the best ways for beginner investors to get their feet wet in the stock market.

How does it work?

It tracks the market capitalization of the companies in its index. Market cap is the total value of all shares of stock a company has issued. It’s calculated by multiplying the number of shares issued by the stock price.

A company that has a market cap of $100 billion receives 10 times the representation as a company whose market cap is $10 billion. As of July 2020, the total market cap of the S&P 500 was $27.05 trillion.

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How is calculated value of the S&P 500?

The S&P 500’s value is calculated based on the market cap of each company, adjusted to consider only the number of shares that are traded publicly. If we add up the market caps of all the companies in the index, we could say the S&P 500 is worth about $24.47 trillion as of February 2020.

What companies are included?

However, each company in the S&P 500 is given a specific weighting, obtained by dividing the company’s individual market capitalization by the S&P 500’s total market capitalization.

Also read: How to achieve financial freedom

Companies with larger market caps are weighted more heavily than those with smaller market caps. Here’s a look at the 10 highest-weighted stocks currently in the S&P 500:

  1. Apple Inc. 
  2. Microsoft Corporation 
  3. Amazon.com Inc.
  4. Facebook Inc. Class A
  5. Tesla Inc.
  6. Alphabet Inc. Class A
  7. Alphabet Inc. Class C
  8. Berkshire Hathaway Inc. Class B
  9. Johnson & Johnson
  10. JPMorgan Chase & Co.

List current as of February 5, 2021

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