What is the S&P 500 and 5 Reasons You Should Care
The Standard & Poor’s 500 (S&P 500) is an index of 500 US large-cap stocks. It is a widely considered the best gauges for the overall US stock market.
Though it is not possible to invest directly in an index, exchange traded funds (ETFs) are an easy and cost-effective way to closely replicate investing in the S&P 500.
5 Reasons to consider investing in S&P 500 tracking ETFs:
1. Performance: The S&P 500 Index has generated average annual returns greater than 10% over the last 10-, 20-, 30- and 40-year periods ending July 31, 2023.
Performance of S&P 500 Index (annualized)
Last 10 years: 12.6%
Last 20 years: 10.1%
Last 30 years: 10.2%
Last 40 years: 11.3%
2. Simple passive strategy that’s tough to beat: Between 2001 and June 30, 2022, the index outperformed over 50% of large-cap active managers (professional investment managers) 18 out of 21 times.
3. Diversification: Investors can invest in hundreds of companies in 11 sectors: Information Technology, Health Care, Financials, Consumer Discretionary, Communication Services, Industrials, Consumer Staples, Energy, Utilities, Materials and Real Estate.
Sector Weights of S&P 500 Index
Information Technology: 28.1%
Health Care: 13.1%
Financials: 12.6%
Consumer Discretionary: 10.6%
Communication Services: 8.7%
Industrials: 8.5%
Consumer Staples: 6.6%
Energy: 4.3%
Utilities: 2.6%
Materials : 2.5%
Real Estate : 2.5%
4. Dividends: Investing in S&P 500 stocks can be a growing source of passive income from the dividends paid out by the companies in the index. More than 75% of the companies in the index pay a dividend. Over the past 10 years, dividends in the index have grown by an annualized growth rate of 7.8%.
5. Big recognizable names: Investors may be happy to discover that by investing in an S&P 500 ETF, they are also gaining investment exposure to some of the world’s largest and most recognizable names. Apple, Microsoft, Amazon, Nvidia, Alphabet and Tesla are among just a few of the companies in the S&P 500.
Disclosures:
1. Source: Bloomberg Finance LP. Data as of 7/31/2023. Although it is not possible to invest directly in an index, there are ETFs and funds designed to track the S&P 500 Index. Index performance does not reflect fees applicable index tracking ETFs (or other funds).
2. https://www.spyglobal.com/spdji/en/documents/additional-material/sp-500-brochure.
3. https://www.spyglobal.com/spdji/en/indices/equity/sp-500/#data.
4.Source: Beanstox. Bloomberg Finance LP. 75% as of 7/31/2023. 7.8% as of 12/31/2023
5. https://www.spyglobal.com/spdji/en/indices/equity/sp-500/#data.