If you’re unclear on what an S&P 500 index fund is, it’s worth breaking down various parts of this larger term to help it make sense.
S&P Global is a major provider and manager of market data. Think of it as a company that digs into all the numbers behind stocks and other assets.
The S&P 500 index is this company’s flagship product, composed of the 500 largest U.S. companies when ranked by market value.
An index fund is a diversified investment vehicle that is locked to a fixed list of assets, or an “index.” These are passive lineups, as opposed to more active strategies that depend on a money manager trading individual positions voluntarily.
The S&P 500 is widely recognized to be the best measure of Wall Street performance. It’s not perfect, as it excludes a lot of the little guys. It also admittedly plays favorites with some sectors, with technology leading the index at 28% of the weighting while utility stocks add up to less than 3% of the total.
But if you simply want to know what’s going on in “the stock market,” the S&P 500 index is as good a proxy as you’ll find. Similarly, investing in an S&P 500 index fund is one of the simplest and most popular ways to gain exposure to Wall Street without picking individual stocks.
