The Standard & Poor’s 500 Index is a collection of some 500 different stocks, all of which are chosen based primarily on their industry category, size, and their liquidity. The purpose of these stocks is to function as an important gauge of United States equities and allow investors to assess the risk and reward of large companies. In order to be listed on the S&P 500, companies must have a market capitalization above $10 billion and have common stock listed on the NYSE or NASDAQ. Some of the world’s most successful companies call the S&P 500 home, and range from industrial conglomerates like Apple, Sony, Amazon, Salesforce.com and many other work-class corporations. Click here to view the list.
As a result, the S&P 500 serves an important function for economists and investors alike; acting as a chief indicator of market health, and a way to spot signs of any potential market challenges as they arrive.
Who manages it?
Since the S&P 500 is such a large portfolio of businesses, the only way to successfully manage it is through the use of a committee. Enter the S&P Index Committee, which is comprised of the top economists and analysts working in the market today. The committee is different from other financial institutions in that it does not follow a rigid set of guidelines when selecting companies for the S&P 500. Instead, they allow their collective experience and market trends dictate their course of action.
The goal of the committee isn’t to choose stocks that are most likely to beat the market. Instead, the index committee picks stocks with the purpose of providing an accurate portrayal of the stock market and its current trends to investors.
What is the annual return?
One of the single greatest tools that any investor has is time. Investing money early and allowing these investments to mature ensures that one’s money isn’t subject to the up and down whims of the market. It allows overall trends to prevail, and since its inception in 1957, few investments have posted as high a return as the S&P 500.
Between 2006 and 2015, the S&P remained one of the most effective ways for people to invest their money, posting an average return rate of 9.03%. Compared to the average return of 6.06% for bonds over this same time period, and it becomes easy to see why the S&P remains a favorite among investors.
Who should invest in the S&P 500?
Although it may seem that investing in companies with such high market capitalization might be an impossibility for all but the richest of the rich, it is open to investors of all shapes and sizes. All it requires is a quick phone call to a brokerage firm, and a discussion about their investment options.
Brokerage firms aren’t the only method of investing in the S&P 500: investors can also purchase an exchange traded fund like the iShares S&P 500 Index ore the S&P Depository Receipt. These types of investments are actually securities that trade much in the same way as stocks, and provide an excellent way for individuals to diversify their portfolio.
What Are the Advantages of Investing?
For the individual investor, one of the greatest advantages of the S&P 500 is its consistent market performance. Year after year, the S&P 500 has shown the ability to give an above average return on investment, beating stocks, bonds and T-bills by a wide margin. Although, like all investments, there are occasional down years, the general trend of the S&P 500 has been overwhelmingly positive.
Apart from simply using the S&P 500 as a way to receive a larger return on investment, savvy investors will use their S&P 500 holdings as a way to benchmark the rest of their portfolios. The performance of large-cap companies provides a broad overview of the market itself, and can be a useful tool for those wondering how the rest of their stocks might trend.
What Is the Future of Outlook of the S&P 500?
Currently, investors have been enjoying the third-longest bull market in history. Market values of continued to increase to record highs, despite potential warning signs in other corners of the economy. As a result, Wall Street investment strategists have had a more conservative outlook for the S&P 500 than in years past. The expected interest rate increases by the Federal Reserve have caused analysts to be less optimistic about future market performance.
However, although the days of record market value increases might soon be over, the forecast for the S&P 500 still remains extremely positive. The S&P Index is expected to finish 2016 at almost 2220, which would be an increase over 2015’s close by almost ten percent. So while the bull market may be coming to a close, the S&P 500 will remain one of the best ways for the individual to not only to invest their money, but also to watch it grow.
Would you like to invest into S&P 500?
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