What is the S&P 500
Have you been investing for a while? Then you’ve probably heard of the S&P 500. Many portfolios have some allocations in this index – even you might even be investing in it. Whether you’re a skilled investor or a newbie, the details of the S&P 500 index seem to be confusing. Let us answer your common questions about the widely used index.
Who are qualified for the S&P 500? The Stand & Poor’s 500 index is made up of the largest U.S. stocks and is weighted by market capitalization. Many consider this index the best way to determine how the US stock markets are doing because it encompasses so many large US companies. The qualifications include any American company with a market cap of $5.3 billion or more, who have reported positive earnings in the most recent 5 quarters, with a public float of at least 50% outstanding shares, and has an active market with reasonable share prices. Once all these criteria are met, the company will be considered for the S&P 500—not guaranteed.
Who makes up the S&P 500? You’ve probably heard of most of the top 50 companies in the S&P 500 such as ExxonMobil, Amazon, AT&T, JPMorgan Chase, and Facebook. As of September 3rd, 2019, the top 10 companies are Microsoft, Apple, Amazon, Facebook, Berkshire Hathaway, Alphabet Inc. Class C, JPMorgan Chase, Alphabet Inc. Class A, Johnson & Johnson, and Visa. Of course, these can change throughout the week and even the day, depending on the company’s performance.
What are some positives of this index? This index offers a simple investment plan through ETF because it gives dividends and comes with a continuous contract. Do you like low maintenance? Then this could be for you! You can also buy as little as one share of the S&P 500, encouraging lower income earners to invest or allowing new investors to experience the index without a huge commitment. The S&P 500 is updated quarterly, which provides an accurate portfolio based on the economic status.
There must be some downsides, right? While it is a diverse index, it only encompasses the US stocks, leaving the rest of the world out. Because this index is cap-weighted, the stock with the largest percentage of ownership has the most market capitalization. This means as the company’s value goes up, it’s weight in the index does as well; therefore, the performance is influenced by the stock.
Should I invest in the S&P 500? This is a question for your financial consultant. At a basic standpoint, most portfolios have some allocations in this. Many recommend purchasing some of the stocks, not all 500. A diversified portfolio usually has a better chance of profit. If you’re thinking of investing in this index, you can ask a financial consultant or do some research. Doing your own research? Look into the first 50 companies, evaluate their previous quarterly performance, and then decide.
What are your thoughts on the S&P 500? Opinions vary but most people aren’t familiar with indexes beyond the S&P 500 and the DJIA. At RGA, we believe each portfolio is as unique as the person who owns them, so each person requires a customized plan, which may or may not include this index. Want to know your options? Not sure what’s best for your portfolio to meet your short-term and long-term goals? Schedule a time to chat! Our financial consultants can help get your portfolio in the right direction to help plan your best retirement!