US Markets
S&P 500 Basics
The world's most watched stock market index — what it is, how it works, and how to invest in it.
The S&P 500 (Standard & Poor's 500) is a stock market index tracking the 500 largest publicly traded companies in the United States by market capitalisation. It represents approximately 80% of total US stock market value and is widely considered the best single gauge of US large-cap equity performance. Since 1957, it has returned approximately 10.4% annually including dividends.
How the S&P 500 Works
The index is market-cap weighted, meaning larger companies have proportionally more influence on the index level.
- Maintained by S&P Dow Jones Indices — a committee selects and reviews constituents
- Inclusion criteria: US company, $18B+ market cap, positive earnings, liquidity requirements
- Market-cap weighting: Apple (~7% weight) moves the index more than a small company
- Rebalanced quarterly; typically 20-30 companies replaced each year
- Total return version includes dividends reinvested; price return version does not
Historical Performance
Long-term S&P 500 returns are remarkably consistent, despite severe short-term volatility.
| Period | Annualised Return | Notable Events |
|---|---|---|
| 1950–2024 (74 yrs) | ~10.5% CAGR | Multiple recessions, wars, crises |
| 2000–2009 "Lost Decade" | -0.95% CAGR | Dot-com bust + 2008 GFC |
| 2010–2019 | 13.6% CAGR | Long bull market post-GFC |
| 2020–2024 | 15.1% CAGR | COVID crash and recovery, AI boom |
| Average bear market | -35% peak-to-trough | Recovers average 2.5 years |
How to Invest in the S&P 500
You cannot buy the index directly, but S&P 500 index funds and ETFs track it at very low cost.
- VOO (Vanguard S&P 500 ETF): 0.03% expense ratio — $1 per year on $3,333 invested
- SPY (SPDR S&P 500 ETF): 0.09% — oldest, most liquid ETF in the world
- FXAIX (Fidelity S&P 500 Index Fund): 0.015% — cheapest S&P 500 mutual fund
- IVV (iShares Core S&P 500 ETF): 0.03% — BlackRock's S&P 500 ETF
- India investors: Mirae Asset S&P 500 Top 50 ETF or Franklin Feeder fund on NSE
💡 Pro Tip: Set up automatic monthly investments in an S&P 500 index fund and ignore the daily news. Investors who check their portfolio the least perform the best statistically.
Key Takeaways
- ✓The S&P 500 has returned ~10.5% annually since 1957 — it is the gold standard benchmark
- ✓Market-cap weighting means technology megacaps (Apple, Microsoft, NVIDIA) drive much of the return
- ✓A simple monthly investment in VOO or FXAIX has made millions of ordinary Americans wealthy
- ✓Bear markets are temporary; the long-term trend is upward. Never sell in panic.
- ✓The expense ratio on index funds is 0.03–0.09% — almost zero cost for market returns
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