What Even Is The S&P500?

April 18, 2025

Investing

You hear it all the time, "The market is up…the market is down…the market is shaky…" but what even is the "market?"

Let's break down the S&P500 and how this could have an impact on your life.

The S&P500

The S&P500 (S&P) is an index (a list) made up of basically the 500 biggest companies in America. Not exactly, there's a more complicated way to determine which businesses are in the S&P but when I explain it I usually just say that it's the 500 companies that make the most money.

These companies are from all types of businesses: IT, Health Care, Energy, Real Estate, etc.

When most people are talking about "the market," they are almost always referring to the S&P.

Other Indexes

The Dow Jones (The Dow)

The Dow only includes 30 companies and is all the old-school American staples that your grandparents would recognize like McDonalds, Coca-Cola, and Boeing.

The NASDAQ

This index includes over 3,000 companies and they're all about technology: Apple, Amazon, Google, Nvidia, etc.

The Total Stock Market

This is exactly what it sounds like. The Total Stock Market. Virtually every public company in America will end up on this list. Ranging from things you know to things you've probably never heard of: Apple, Texas Roadhouse, and Hecla Mining Company.

How Can I Participate in the Growth of the S&P?

By investing in it!

Inside an investment account (401(k), Roth IRA, Brokerage, etc) you would select an index fund (VFIAX, etc.) or ETF (SPY, VOO, etc.) that tracks the companies in the S&P500. So you can benefit from the growth of these companies without having to go and buy stock for all 500 of them. Someone else does that for you, and you just have to buy the index fund or ETF.

Quick note on index funds and ETFs:

They're basically the same. Don't overthink it. If you want to do the research and decide which one is better for you, read this article from a guy I trust.

Why We Love the S&P!

It's diversified for us already: Don't put all your eggs in one basket. You can either try to find the needle in the haystack (one stock that will do really well) OR you can just buy the whole haystack!

History is on it's side: For the last 100+ years the S&P has averaged about a 10% return annually. Some years are really bad (down 30 or 40%) and some have been great (up 30 or 40%) but over any 40-year period it's almost always been around 10%.

Quick math on investing in the S&P averaging 10% for 40 years:

$100/mo - $637,000

$250/mo - $1,594,000

$500/mo - $3,188,000

Final Thoughts

Investing isn't FOR the rich. Investing is HOW you get rich.

Listen to the full podcast for more about the S&P500.