The S&P 500 in plain words: what it is and how to invest in it
The S&P 500 is a list of the five hundred largest US companies. You can buy all of it in one purchase — through a fund.
- The S&P 500 is a list of the 500 largest US companies; you buy it through a fund.
- The ten largest companies take up about a third of the index.
- About 10% a year on average over decades, but with declines of 30–50%.
What it is
The S&P 500 is an index, that is, a list drawn up by a rule. It holds about five hundred of the largest companies whose shares trade on US exchanges: Apple, Microsoft, NVIDIA, Coca-Cola and hundreds more. Together they make up roughly four fifths of the whole US stock market.
The list is not frozen: companies that weaken drop out, and those that grow get in. So the index refreshes itself with no effort from you.
How it is built
The larger the company, the larger its share of the index. As a result the ten biggest companies take up about a third of it, and the hundreds of others share the rest.
This matters: by buying the S&P 500 you depend noticeably on a few technology giants, even though formally you hold five hundred companies.
What it has returned
Over recent decades the index has grown about 10% a year on average before inflation — counting dividends. But it never grows smoothly:
- in the 2008 crisis it lost about half and took several years to recover;
- in 2022 it fell by about a quarter;
- there have been decades when it gave almost nothing.
The average return is the result over 20–30 years, not a promise for next year.
How to buy it
You cannot buy the index itself — it is just a list. You buy a fund that holds all those stocks in the same proportions. One unit of the fund trades on an exchange like an ordinary share.
| Fund | Where registered | Who it suits |
|---|---|---|
| VOO, IVV, SPY | United States | Those with access to US funds |
| CSPX, VUAA | Ireland | Residents of Europe and those who care about taxes and inheritance |
These are examples for orientation, not a recommendation. Availability depends on country and broker. How European funds differ from US ones is in the UCITS guide; choosing a broker — in the brokers guide.
What to look at when choosing a fund
- The fee. For large S&P 500 funds it is hundredths of a percent a year. Anything noticeably dearer is not worth it.
- Size. A large fund is easy to buy and sell.
- What happens to dividends. Some funds pay them out in cash, others reinvest them.
What you risk
- One country. This is the US only. For variety people add a fund covering the rest of the world.
- One currency. Everything is in dollars — your own currency's rate affects the result too.
- Deep declines. Minus 30–50% once every ten to fifteen years is a normal part of the index's history.
Open an S&P 500 fund: price, history and all 500 companies inside with their weights.
The VOO fund in the Analyst →See how such a fund would have behaved in past crises.
Risk →This article is educational and is not investment advice. Past returns do not guarantee future ones.