What are stock market indexes?

An index collects data from a variety of companies across industries. Together, that data forms a picture that helps investors compare current prices with past prices to assess market performance. Some indexes focus on a smaller subset of the market. For example, the Nasdaq index is heavily weighted toward technology stocks. So, if you want to know how technology is performing, you’d want to look at the Nasdaq stock index.

What is the 10-year return of the S&P 500?

For the 10-year period through the end of 2025, the S&P 500 produced a 15.5% annualized total return. This represents a cumulative return of approximately 323%, which is above the long-term historical average return of around 9% to 10% per year.

How long should I keep my money in the S&P 500?

There's no perfect holding period for an S&P 500 index fund, but the index is ideal for long-term investing. Many people buy S&P 500 index funds and hold them for decades. However, as you get older, it's often time to gradually shift money away from stocks and into fixed-income investments, like bonds, to reduce volatility and create an income stream.

What is the Nasdaq Composite Index?

The Nasdaq Composite is a stock market index comprising the stocks listed on the Nasdaq stock exchange. To be included in the index:A stock must be listed exclusively on the Nasdaq market.The stock must be common stock of an individual company, so preferred stocks, ETFs, and other securities are excluded.American depositary receipts (ADRs), real estate investment trusts (REITs), and shares of limited partnerships are, however, eligible.That's why there are so many stocks in the Nasdaq Composite and why the index's composition often changes. The index is designed to be representative of the entire Nasdaq Stock Market, not just the largest companies.

Are there fees associated with investing in S&P 500 ETFs or mutual funds?

All S&P 500 ETFs and mutual funds have fees, which are referred to as the expense ratio in investor documents. These are expressed as a percentage of the total fund assets per year, so a 0.03% expense ratio means you'll pay $3 in fees for every $10,000 you invest. To be clear, this isn't a fee you have to actually pay -- it will simply be reflected in the fund's performance over time.

Does the S&P 500 pay dividends?

Many of the 500 companies included in the S&P 500 index pay dividends to shareholders. S&P 500 index funds pass these through to investors as regular dividend payments.

S&P 500 Index Explained: What It Is and How to Invest

S&P 500 Explained: How the Index Works and How to Invest in It

By Matthew Frankel, CFP – Updated Sep 3, 2026 at 12:13 PM EST | Fact-checked by Frank Bass

Key Points

S&P 500 index includes 500 large U.S. companies, weighted by market capitalization.
Largest companies like Apple significantly influence the S&P 500's performance.
Investors can buy S&P 500 through ETFs like Vanguard's VOO with minimal fees.

Among the major U.S. stock indexes, the S&P 500 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.

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Why use the S&P 500?

You may wonder why the S&P 500 is considered such a valuable market and economic indicator.

The S&P 500 comprises a broad basket of stocks. Therefore, it includes the companies most widely held by individual investors. In fact, the 500 companies account for roughly 80% of the total value of the U.S. stock market.

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, that company would account for 2.5% of the index by weight.

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Which companies are in the S&P 500 index?

The S&P 500 index comprises 503 stocks issued by 500 companies. The numbers differ because a few S&P 500 components issue more than one class of stock. For example, Alphabet Class C (GOOG -1.05%) and Alphabet Class A (GOOGL -1.11%) stock are both included in the S&P 500 index.

Obviously, it wouldn't be practical to list all of the S&P 500 companies here. However, because the S&P 500 is weighted by market capitalization, its performance is primarily driven by the largest companies.

With that in mind, here's a look at the 10 largest companies of the S&P 500 index as of September 2026. This list of S&P 500 top holdings and its sequence can, and probably will, change over time.

Nvidia (NVDA +0.84%)
Alphabet (GOOGL -1.11%) (GOOG -1.05%)
Apple (AAPL -2.51%)
Microsoft (MSFT -2.04%)
Amazon (AMZN -0.15%)
Broadcom (AVGO +0.21%)
Meta Platforms (META +1.00%)
Tesla (TSLA -5.92%)
Micron Technology (NYSE:MU)
Berkshire Hathaway (BRK.A -0.48%)(BRK.B -0.41%)

Data source: Dow Jones S&P Indexes.

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S&P 500 vs. other major indexes

Although the S&P 500 is widely regarded as the best gauge of how the U.S. stock market is doing, there are several other indexes that can be useful for investors as well, including:

Dow Jones Industrial Average
Nasdaq Composite
Russell 2000 (small-cap index)

S&P 500 vs. Dow Jones Industrial Average

The Dow Jones Industrial Average is a price-weighted index, meaning that the companies with the highest stock prices have the most influence on the index, regardless of their valuations. The Dow Jones Industrial Average lists only 30 companies and excludes some of the largest stocks in the market, including Amazon, Alphabet, and Berkshire Hathaway.

Because the Dow is price-weighted, Goldman Sachs (GS +0.07%) has a share price of about $1,000 in September 2026. Because of this, it has about 9.5 times the influence on the Dow's performance as Walmart (NYSE:WMT), despite Goldman's market cap being about one-third that of the retail giant.

For these reasons, the S&P 500 is generally regarded as a more reliable stock market indicator.

S&P 500 versus the Nasdaq

The obvious difference between the S&P 500 and the Nasdaq Composite Index is that the latter's stocks must be listed exclusively on Nasdaq. The S&P 500 is a mix of both Nasdaq and New York Stock Exchange (NYSE) stocks.

You may also notice that when tech stocks are underperforming, the Nasdaq Composite tends to lag the S&P 500 because it has a higher proportion of technology stocks than the broader market, making it a more tech-heavy index.

Another key difference is that while the S&P 500 consists of large-cap stocks, the Nasdaq Composite includes all Nasdaq-listed stocks, making it more diverse in terms of the market caps it represents.

S&P 500 versus the Russell Indexes

The Russell Indexes are designed to provide benchmarks for the entire stock market. The Russell 1000 is the closest comparison to the S&P 500. It's a large-cap stock index comprising 1,000 stocks (twice as many as the S&P 500) and representing approximately 93% of the stock market.

There is also the more popular Russell 2000 index, which is considered the best benchmark of how small-cap U.S. stocks are doing. Collectively, the Russell 1000 and Russell 2000 are known as the Russell 3000, which is a total stock market benchmark index.

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Limitations of the S&P 500 index

By far, the most significant limitation of the S&P 500 index is its market-cap weighting. Because larger companies carry more weight, the index's performance is highly dependent on a small group of them. Meanwhile, the smaller components of the S&P 500 have a minimal influence on the index's performance.

Another significant limitation of the S&P 500 is that it only includes large-cap companies listed on major U.S. stock exchanges. It lacks significant geographic diversity, even though many of the companies in the index operate globally.

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How to invest in the S&P 500 index

You can invest in the S&P 500 index by purchasing shares of a mutual fund or exchange-traded fund (ETF) that passively tracks the index. These investment vehicles own all the stocks in the S&P 500 index in proportion to their weights.

The Vanguard S&P 500 ETF (VOO -0.38%), which trades just like a stock, and the Vanguard 500 Index Fund Admiral Shares (VFIAX +1.06%) mutual fund are two attractive options. Both have extremely low fees and deliver virtually identical performance as the S&P 500 index over time.

You can also buy S&P 500 futures, which are traded on the Chicago Mercantile Exchange; however, this is a far more complex way to invest than simply buying an index fund. These are essentially options that enable hedging or speculating on the index's future value.

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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%.
You can easily invest in a passive S&P 500 fund with virtually no investment fees.
Investing in the S&P 500 is a maintenance-free investment you can simply buy and leave alone.
Investing in the S&P 500 is a way to gain broad exposure to the profitability of U.S. businesses without excessive exposure to any individual company’s performance.

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S&P 500 FAQ

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About the Author

Matt Frankel, CFP®, is a contributing Motley Fool stock market analyst specializing in the real estate and financial sectors. 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, Globe St, The National Desk, and other TV networks and publications for his real estate, financial, stock market, and investing expertise.

TMFMattFrankel

@MattFrankelUSC

Matt Frankel, CFP 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, Broadcom, Eli Lilly, Goldman Sachs Group, Meta Platforms, Microsoft, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.

S&P 500 Explained: How the Index Works and How to Invest in It

Key Points

Why use the S&P 500?

Company weighting formula and calculation

Which companies are in the S&P 500 index?