March 13, 2026
Written by Catherine Hiles
Certified Financial Education Instructor®
Certified Financial Education Instructor®
Catherine Hiles, CFEI®, originally hails from the U.K. and currently resides in Ohio, where she writes about finance, parenting, pets, home improvement, and more. In her spare time, Catherine enjoys running, reading, and hanging out with her husband, two young children, and energetic dog.
For everyday investors, the S&P 500 offers a simple way to participate in the growth of America's largest companies. Instead of researching hundreds of individual stocks, you can invest in the whole index through a single fund.
The S&P 500 tracks 500 of the largest publicly traded companies in the United States and covers about 80% of the total U.S. stock market value.
Larger companies carry more weight in the index than smaller ones because the S&P 500 uses size-based weighting.
You can invest in the S&P 500 through mutual funds or exchange-traded funds (ETFs).
Historically, the S&P 500 has returned an average of 10% per year over the long term.
When you hear someone say "the market" went up or down, they're often referring to the S&P 500. The S&P 500 is a stock market index that tracks 500 of the largest publicly traded companies in the United States, or roughly 80% of the total U.S. stock market value.
Below, learn how the index works, which companies it includes, how it compares to other indexes, and how you can invest in it.
The S&P 500 – short for Standard & Poor's 500 – is a stock market index that tracks the performance of 500 large companies listed on U.S. stock exchanges. Think of it like a scoreboard for the biggest players in the American economy.
Because the index covers about 80% of the total U.S. stock market by value, it's one of the most-watched measures of how American businesses are doing overall.
Standard & Poor's, a financial services company, created the index in 1957. Since then, it's become the go-to benchmark for investors, economists, and anyone trying to gauge the health of the U.S. economy.
The S&P 500 acts as a measuring stick. Investors use it to see how their own portfolios stack up. If your investments returned 8% last year and the S&P 500 returned 10%, you underperformed the market. That comparison helps you figure out whether your investment approach is working.
Economists and financial professionals also watch the index as a signal of economic health. When the S&P 500 rises steadily, it often reflects confidence in the economy. Prolonged drops might hint at uncertainty ahead.
For everyday investors, the S&P 500 offers a simple way to participate in the growth of America's largest companies. Instead of researching hundreds of individual stocks, you can invest in the whole index through a single fund.
The S&P 500 uses market-capitalization weighting. Market capitalization – or "market cap" for short – is the total value of all a company's shares. You get that number by multiplying multiply the stock price by the total number of shares. It's simpler than it sounds.
So what does that mean for you? Bigger companies have a more significant impact on the index. If Apple's stock jumps 5%, that moves the needle on the S&P 500 more than if a smaller company's stock jumps by the same percentage.
A committee at S&P Dow Jones Indices decides which companies belong in the index. They review the lineup quarterly and can add or remove companies based on specific criteria. The goal is to keep the index representative of the large-cap U.S. stock market.
You probably recognize many of the names in the S&P 500. Technology giants like Apple, Microsoft, Amazon, and Alphabet sit near the top. Banks, healthcare companies, and consumer brands fill out the rest.
To make the cut, a company generally has to meet a few requirements:
U.S.-based: Headquarters are in the United States
Large market cap: Currently $20.5 billion or more
Publicly traded: Shares trade on major exchanges like the NYSE or Nasdaq
Profitable: Has been profitable recently and over the past year
Actively traded: The stock is bought and sold regularly
The index spans 11 different sectors – information technology, healthcare, financials, energy, consumer staples, and more. That variety means when you invest in the S&P 500, you're spreading your money across different parts of the economy rather than putting all your eggs in one basket.
The S&P 500 isn't the only major stock market index. Each index tracks a different slice of the market, and understanding the differences can help you determine which one fits your goals.
The Dow Jones Industrial Average – usually just called "the Dow" – only tracks 30 companies. That's a much smaller group than the S&P 500's 500.
The Dow uses price weighting rather than market-cap weighting, so a company with a higher stock price has more influence regardless of its overall size. Many investors consider the S&P 500 a better snapshot of the broader market because it includes more companies.
The Nasdaq Composite includes over 3,000 stocks listed on the Nasdaq exchange. It leans heavily toward technology – companies like Apple, Amazon, and Google make up big chunks of it.
If you want more exposure to tech and growth stocks specifically, the Nasdaq might interest you. The S&P 500 offers more balance across different sectors of the economy.
The Russell 2000 focuses on small-cap companies – businesses with lower market capitalizations than those in the S&P 500. Smaller companies can offer higher growth potential, but they often come with more ups and downs along the way.
Index | Number of Companies | Company Size | What It's Best For |
|---|---|---|---|
S&P 500 | 500 | Large-cap | Broad U.S. market exposure |
Dow Jones | 30 | Large-cap | Tracking blue-chip companies |
Nasdaq Composite | 3,000+ | Various | Tech-focused investing |
Russell 2000 | 2,000 | Small-cap | Small company growth potential |
Over the long haul, the S&P 500 has delivered an average annual return of roughly 10%. After inflation, that number drops to around 7% per year. Keep in mind that "average" includes both great years and terrible ones – the market doesn't go up in a straight line.
The index has survived some rough patches. The 2008 financial crisis, the dot-com crash in the early 2000s, and the pandemic-driven drop in 2020 – each time, the market eventually recovered and hit new highs. ome recoveries took months, others took years — but the market did recover.
Past performance doesn't guarantee future results. The market can and does decline, sometimes sharply. However, investors who stayed the course through downturns and held for the long term have historically seen positive returns.
Tip: Time in the market often matters more than timing the market. Investing steadily over time usually beats trying to predict when to buy or sell.
You can't buy shares in the S&P 500 directly – it's an index, not a stock you can purchase. Instead, you invest through funds that track the index's performance.
Index funds are mutual funds designed to mirror the S&P 500. They hold the same stocks in roughly the same proportions as the index itself. Many charge the annual fee you pay to own the fund (called an expense ratio).
Exchange-traded funds work similarly but trade on stock exchanges like individual stocks. Popular S&P 500 ETFs include the SPDR S&P 500 ETF and the Vanguard S&P 500 ETF (VOO). You can buy and sell ETFs throughout the trading day, while mutual funds only trade once daily after the market closes.
To get started, you'll need to open a brokerage account if you don't already have one. Many brokerages offer commission-free trading on popular index funds and ETFs. From there, you can set up regular contributions – even small amounts add up over time through compound growth (when your returns start earning returns of their own).
The S&P 500 gives you a foundation for understanding how the stock market works. The index offers a straightforward, diversified way to invest in major American companies without the complexity of picking individual stocks.
Whether you want to start investing or you're looking to strengthen your financial knowledge, the S&P 500 represents one piece of a bigger picture. Pairing smart investing habits with solid money management – like building an emergency fund and avoiding unnecessary fees – can help you work toward your financial goals.
Get started with Chime today to build a strong financial foundation that supports your long-term plans.
Yes, you can lose money. The stock market fluctuates, and the S&P 500 can drop during economic downturns or periods of uncertainty. Historically, the index has recovered from declines, but there's no guarantee that pattern will continue. Investing with a long-term perspective and avoiding panic selling during dips can help manage risk.
You can start with very little. Many brokerages offer fractional shares, which let you invest with as little as $1 or $5. Some S&P 500 index funds have no minimum investment requirement. The key is to start where you are and contribute consistently over time.
If you invested $500 monthly and earned the historical average return of about 10% per year, you'd have roughly $102,000 after 10 years and over $380,000 after 20 years. Remember that actual results will vary based on market performance during your specific investment period, and past returns don't guarantee future results.
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