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What is the Standard & Poor's 500?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 27 October 2018
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The Standard & Poor's 500 is a stock index which has been published since 1957 in the United States. Standard & Poor's actually produces a number of indices and other investment products including credit ratings, but the Standard and Poor's 500 is probably their most famous product. This stock index is viewed as a key indicator of American economic health and it is commonly quoted in the news media when quick overviews of the financial market are provided. The Dow Jones Industrial Average is another notable economic indicator in the United States.

As one might imagine from the name, the Standard & Poor's 500 includes 500 companies. These companies are traded on either the New York Stock Exchange or the Nasdaq, and they are primarily companies based in the United States. However, the Standard & Poor's 500 does not simply track the 500 biggest companies in the United States. Instead, a committee of individuals determines which stocks should be listed.

The index is arranged in a way which is meant to track the leading performers in the major industries of the United States. This is meant to provide a broad and representative overview of the health of the American economy and American industry. The index is weighted, with the value of each stock in the index being calculated in terms of its percentage of market value.

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When adding stocks to the Standard & Poor's 500, the committee considers the liquidity of the stocks, excluding companies with highly illiquid stocks even if they are large. In addition, companies must have a minimum of a five billion dollar market capitalization and at least half of their stock must be available for public trade. The Standard & Poor's 500 also focuses on tracking companies which are functional and viable; companies which appear to be failing are removed from the index.

Following the performance of the Standard & Poor's 500 can provide information about the direction in which the economy of the United States is moving. In addition, companies in this listing are generally deemed sound and productive investments. Some funds are based on the Standard & Poor's 500 index and some of these index-based funds perform very well. For people who are just starting to explore investment, some financial advisors and other finance professionals recommend a modest investment in such a fund to start earning money while learning about the market in a relatively safe way.

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