I know everyone may have heard or read about the Standard & Poor’s 500 or S&P 500. For beginning investors, it can help determine how a lot about certain stocks. It is not difficult at all to understand and today I will provide a brief overview of what the S&P 500 is and how it can help the investor.
S&P 500 is an index of 500 companies that is provides larger representation of most type of stocks that are traded in the stock market. The 500 companies are large cap companies. It will allow an investor to get an idea of the risk and rewards that would exist for large cap companies. It uses weighted average market capitalization to indicate how much of an effect the company has on the S&P 500. When market cap of each company is added to together and then the percentage of the market cap of that particular company is used to show how much of influence it had in determining the overall average of the S&P 500. The larger companies have the most influence on the index.
It only uses American companies and the companies that are a part of the index is picked by a committee. S&P 500 will indicate to the investor the way a market maybe moving because of volume all the companies generate. If the index is down it usually means stocks are down and vice versa. Index is 70% of the value of the U.S. stock markets.
S&P 500 is not the only index that you may hear about they are indexes that represent small cap companies and they are indexes such as the Dow Jones which use fewer companies in their index. They are all reflection of portion of the market. They can act as quick reference of what the market is doing. Standard & Poor’s 500 is an index that will remain popular with the investor; therefore, take what you learn from it and use it to your advantage and make money work hard for you.