The S&P 500 Index

By Matthew Frankel, CFP – Updated Jun 23, 2025 at 3:42 PM

Key Points

The S&P 500 index includes 500 large U.S. companies, representing about 80% of U.S. market value.
You can invest in S&P 500 through low-fee ETFs or mutual funds to gain broad market exposure.
The S&P 500 offers a reliable benchmark for comparing portfolio performance against U.S. stocks.

When it comes to the major U.S. stock indexes, the S&P 500 index is considered the best gauge of the overall stock market's performance and an indicator of how large U.S. corporations are performing.

With that in mind, here’s what all investors should know about the S&P 500 index, how it works, how you can invest in it, and why doing so could be a smart move.

S&P 500 listed repeatedly. — Image source: Getty Images.

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Why use the S&P 500?

You may be wondering why the S&P 500 is considered so useful as a market and economic indicator. Because the S&P 500 consists of a broad basket of stocks without too many small or obscure companies, it contains the companies most widely owned by individual investors. In fact, the 500 companies account for roughly 80% of the overall value of the stock market in the U.S.

Company weighting formula and calculation

The weighting formula for S&P 500 stocks is fairly straightforward. First, the company's market cap is determined by multiplying each company's outstanding share count by its current share price.

Next, the market caps of all S&P 500 components are added together. Each company's market cap is then divided by the total to determine its weight in the index. For example, if the combined market cap of all S&P 500 companies is $40 trillion and one company has a $1 trillion market cap, it would make up 2.5% of the index by weight.

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Is investing in the S&P 500 right for you?

Legendary stock market investor Warren Buffett has famously said that a low-cost S&P 500 index fund is the best investment that most people can make. It’s not difficult to see why. Over long periods, the S&P 500 has delivered annualized total returns of 9% to 10%, and you can easily invest in a passive S&P 500 fund with virtually no investment fees.

If you have the time, knowledge, and desire to properly research stocks and maintain a portfolio, it’s certainly possible over the long term to achieve superior investment returns relative to the S&P 500. However, not everyone has the time and discipline needed to invest in stocks that way, and newer investors especially may be better off buying shares in an S&P 500 index fund until they build up their knowledge.

Investing in the S&P 500 is a way to get broad exposure to the profitability of U.S. businesses without too much exposure to any individual company’s performance. Over time, the S&P 500 can produce strong returns for your portfolio with minimal effort on your part.

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About the Author

Matt Frankel, CFP, is a contributing Motley Fool stock market analyst and personal finance expert covering financial stocks, REITs, SPACs, and personal finance. Prior to The Motley Fool, Matt taught high school and college mathematics. He holds a bachelor’s degree in physics from the University of South Carolina, a master’s degree in mathematics from Nova Southeastern University, and a graduate certificate in financial planning from Florida State University. He won a SABEW award for coverage of the 2017 Tax Cuts and Jobs Act. He is also regularly interviewed by Cheddar, The National Desk, and other TV networks and publications for his financial, stock market, and investing expertise.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of Motley Fool Money. Matt Frankel has positions in Amazon, Berkshire Hathaway, General Motors, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Goldman Sachs Group, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, Tesla, Vanguard S&P 500 ETF, and Walmart. The Motley Fool recommends Broadcom and General Motors and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.