S & P 500 Index
For non-investors, much of the lingo thrown around about "the markets" and "the averages" can be kind of
confusing. Even if you are an investor, you might not be all the way familiar with what some of these terms
mean! There are many resources available online for folks to read and familiarize themselves with these
investing terms. However there's also a lot of bad, wrong, incorrect, and misleading information online. So
who do you trust?
Well, one of the most well policed places for people to find investing information online is "." From
investorpedia.com is where we are able to get a definition for one of the most oft quoted places people hear
about, but may not be 100% familiar with. When you're listening to investment news on television, typically
noted right after the "Dow Jones" is the S&P 500 Index. But what does S&P stand for? How is the S&P
Index related to investing? How does this number affect my life and my investing choices?
What does "S&P" stand for?: "S&P" stands for "Standard and Poor's." Standard and Poor's is a financial
services company. Henry Varnum Poor and Luther Lee Blake were two early record keepers; Poor
published "History of Railroads and Canals in the United States" while Luther Lee Blake was the founder of
the Standard Statistics Bureau. This was 100 years ago or more; the short version is the organization known
as Standard & Poor's is what their work became.
What is the S&P 500 Index?: Again, from investorpedia.com, the S&P 500 Index is an index of "500 stocks
chosen for market size, liquidity and industry grouping, among other factors." When we talk about an
"index" in investing, we mean a method of measuring specific sections of the stock market. "The S&P 500 is
designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the
large cap (stock) universe." are stocks whose market capitalization is $10 billion dollars or more. Market
capitalization is calculated when you multiply the number of a company's shares outstanding by the stock
price per share. Large cap stocks include familiar names like Time Warner, J.M. Smucker, and Priceline.
How is the S&P Index related to investing?: If you're trying to figure out how your individual are doing, you
need to look at your particular stock, mutual fund, or what have you. If you're trying to see broadly how the
market is doing, that is when you would look to the S&P 500 Index. Because the stocks in this index are so
broad and represent a market weighted average, the health or ill repute of the S&P 500 Index is a pretty
good indicator of the economy largely (many agree, even a better indicator than the Dow Jones Industrial
Average). For your own individual investments, there are particular funds which trade in a basket of stocks
on the S&P 500 Index. This means that these funds try to emulate the holdings of the index; if you own one
of these funds your interest should be attuned to the success of the S&P average.
When you are an investor, knowing WHAT you are investing in is very important. Knowing what
commentators are talking about when they use terms like S&P 500 Index will help you make informed
investment decisions. Make sure to do your own investment research though, before acting on anyone's
advice.
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