The STANDARD & POOR’S 500 Index (S&P 500) is one of the most popular and well-known world stock indices. It can be put on a par with the Dow Jones index. On October 29, 2021, the index reached its all-time high, so its prospects are quite good.
What is the S&P 500
The abbreviation “S&P 500” refers to the stock market index. At this point in time, he is tracking the stocks of 500 US companies. All of them are distinguished by a large degree of capitalization. Thanks to the SP500, you can track the performance of the stock market. He will also report on the risks and rewards of the largest companies. The index is often used by investors as a benchmark for the entire market. It has been compared to all other types of investment. As of 2021, the index has an average return of about 13% per year. In October of this year, it reached its all-time high. At this time, the value of the intraday high and high close was 4,608.08.
s & p 500 today – 12/18/2021 [/ caption] The very concept of a stock or stock index is an indicator by which investors can determine the overall price dynamics for the entire group of shares or other types of assets at the same time. In other words, several stocks are taken into account at once, for example, all companies of a particular country, which have the same prices. The latter, in turn, are multiplied by specially selected coefficients. The numerical value of the index, if we take a separate period of time, does not carry any useful information. Investors monitor how the price indicator for the entire group of assets changes over a certain time period. The standard period is considered to be 10 years. If the index continues to rise for 10 years, it will be an indicator that the country’s economy is in good health.The shares of companies have stable prospects, and, accordingly, their purchase will bring a person a good profit in the future. The S&P 500 index contains the names of the two founding financial companies. This is Standard and Poor. It was officially introduced on March 4, 1957. In 1966 it is acquired by the McGraw-Hill Company. Since then, the index has been acquired by other organizations several times. It is now owned by the Dow Jones owner’s company. Since then, the index has been acquired by other organizations several times. It is now owned by the Dow Jones owner’s company. Since then, the index has been acquired by other organizations several times. It is now owned by the Dow Jones owner’s company.
SP500 index chart from 1990 to 2012 [/ caption]
What is included in the S&P 500 index
The index is compiled as follows. The 500 largest US companies by capitalization are taken into account. However, there are a number of nuances here. For example, in the calculations, only those capitalization volumes are taken into account that have free circulation on the market (at least 50% of shares). Private companies and those organizations whose shares cannot be purchased on the stock market are not taken into account. In addition, the stocks included in the index should be distinguished by their liquidity. In other words, there should be an opportunity to buy or sell shares at any time. The composition of the S&P 500 is reviewed every quarter. The changes mainly concern:
- inclusion and exclusion of certain companies from the index;
- decrease or increase in the share of the organization’s shares in the index;
At the moment, the main current composition of the S&P 500 looks like this:
Composition of the S&P 500 – s & p 500 today [/ caption] Do not forget that at the time of reading the article, the data in the table may have changed. The share of companies in the index is recalculated, as already mentioned, every quarter of the year. It should also be borne in mind that the total weight of the company in the index is distributed somewhat unevenly. For example, the top 10 companies account for only 25% of the total weight. The next 15 organizations on the list will occupy almost a third of the total volume. The share of companies that are included in the TOP-50 will be approximately 50%. The weight of the companies that are at the bottom of the index list, i.e. takes from 400 to 500 places, it will be quite insignificant. On average, this is from 0.01 to 0.05%. Those. if you compare these indicators with the table, it turns outthat the weight of such index giants as Microsoft or Apple is equal to about 100 companies from the fifth hundred of the list.
How the S&P 500 works
The S&P 500 closely monitors the market capitalization of the companies that make up the index. The term “market capitalization” here refers to the total value of the shares that are issued by the company. It is not difficult to calculate it. It is enough to multiply the number of shares that the company issues by their number. For example, if an organization had a market cap of $ 100 billion, it would make 10 times the profit of a company with a market cap of $ 10 billion.
As of 2021, the total market capitalization of the S&P 500 is about $ 27.5 trillion.
Keep in mind that the index only measures publicly available stocks. It does not include those securities that belong to control groups, other companies or government agencies. To be included in the index, a company must be located in the United States of America and have a market capitalization of at least $ 8.2 billion. Moreover, at least 50% of its shares must be available to the general public. The securities must be traded at a minimum of $ 1 apiece. For the last four quarters before being included in the index, the organization should have only positive profits. At the same time, analysts are required to confirm that, according to forecasts, this trend should continue over the next several years. According to the data for 2021, the S&P 500 sector breakdown included the following values:
- Information Technology: 27.5%
- Healthcare: 14.6%
- Consumer Services: 11.2%
- Communication services: 10.9%;
- Finance: 9.9%
- Industry: 7.9%
- Consumer goods: 7.0%
- Utilities: 3.1%
- Real estate: 2.8%
- Materials: 2.6%;
- Energy: 2.5%.
Graphs and explanations
The index maintains its positive upward trend, even despite the economic crisis caused by the pandemic.
Potential growth of the SnP index [/ caption] Analysts predict that on the horizon of 12 months the growth may reach 8%. On average, over the entire existence of the S&P 500 and its predecessors, the annual return on the index was + 9.7%.
In the long term, with the constant refinancing of dividends, the shares of companies that include the index can bring their owner up to 10% yield.
How to make money with the S&P 500
The average citizen of the Russian Federation will not be able to directly invest in the S&P 500. This is due to the policy strictly adhered to by the owners of the index. However, a person can mimic its performance with an index fund. In addition, citizens of the Russian Federation can simply buy shares of companies that are part of the S&P 500. They will also bring good income. Many investors use the S&P 500 as an economic indicator. The fact is that the US economy is notable for its stability. Therefore, the companies included in the index located on the territory of this country are distinguished by their reliability and prospects. This gives investors confidence in the value of the shares they buy from such organizations. Since the S&P 500 only measures United States stocks,investors are advised not to forget about the markets of other countries. In recent years, China and India have good prospects for further development. It might make sense to periodically buy securities that are owned by companies located names in this region. Investing for beginners in the S&P 500 index – how to invest in the SP index: https://youtu.be/ZJrL75jL6rM Some analysts suggest that in the future, in a few years, the shares of China and India may move to the same position with the American ones. More optimistic forecasters believe that the securities will even be able to outperform them. However, these are all only forecasts and assumptions that do not have a solid foundation. However, you shouldn’t ignore them. In the next few years, the economic situation in the world may change dramatically.However, this option cannot be discounted in the long run.
S&P 500 Trading Strategies
There are dozens of trading strategies associated with this index. Here traders use the full range of existing techniques, from scalping to long-term investments. However, apart from the rest of the methods, there is a method that involves the conclusion of transactions aimed at convergence or divergence of the spread between the S&P 500 and other types of indices, or stocks. Formally, this is a type of pair trading that refers to hedging.
Key takeaways from the S&P 500
- Most investors have long known that owning the S&P 500, or part of the stocks it owns, is a good way to diversify your stocks. This is primarily due to the fact that the index currently covers most of the stock market.
- However, sometimes even the most reliable stock market units are in danger of falling. In this case, traders prefer to open short positions.
- In the S&P 500, a short position here can be represented in a variety of ways, from selling the S&P 500 ETF to buying an index put option or selling futures.
What is the S&P 500, how to invest in the SnP 500 index, Warren Buffett’s opinion on the S&P index: https://youtu.be/OFRNvRaguoE Despite the fact that the S&P 500 includes mainly American companies, Russian traders can also make good money on the index money. To do this, you will need to buy shares of organizations that are included in the index. The S&P 500 has good growth prospects, which provides the acquirer with stability and, in the long run, an increase in his share income.