The S&P 500 is a stock market index that measures the stock performance of 500 large-cap U.S. companies. It's one of the most widely followed equity indices. Many beginner investors wonder if they can buy S&P 500 stock.
The S&P 500 Index was officially introduced in March 1957. It has generated an average 10-year annual return of 12.7 percent as of Aug. 31. The index's constituents have changed many times since its inception. On Nov. 16, the S&P Dow Jones Indices announced that Tesla stock would join the S&P 500 index on Dec. 21.
What are S&P 500 companies?
The S&P 500 Index measures the market cap of the companies in its index. The market cap is calculated by multiplying the number of outstanding shares by the share price. As of October 2020, the total market capitalization of the S&P 500 Index was about $27.1 trillion.
The 10 largest companies in the S&P 500 Index represent about 26 percent of the market cap of the index. Below is the list of the 10 largest components of the S&P 500 Index.
- Alphabet (Class A)
- Alphabet (Class C)
- Berkshire Hathaway
- Johnson & Johnson
- Procter & Gamble
On Nov. 16, the S&P Dow Jones announced that Tesla would join the S&P 500 index on Dec. 21. One of the criteria to qualify for inclusion in the S&P 500 Index is that the company must have reported at least four consecutive quarters of net profit. For the first time in its history, Tesla has reported a net profit for five consecutive quarters.
Does the S&P 500 pay dividends?
The S&P 500 doesn’t pay dividends since it's a collection of stocks and not a single stock. The S&P 500 Index tracks 500 large-cap U.S. companies. More than 80 percent of the stocks in the S&P Index pay a dividend.
Can you buy the S&P 500 on Robinhood?
You can’t buy S&P 500 stock on any trading platform, including Robinhood. You can’t buy the S&P 500 like you can buy Facebook stock. However, you can buy an ETF that tracks the S&P 500 Index.
Which S&P 500 ETF to buy?
The S&P 500 is an index of 500 large-cap U.S. companies by market cap trading on the Nasdaq and NYSE. Investors can buy ETFs that track the S&P 500 to get exposure to a wider range of stocks. Below are the top S&P 500 ETFs.
- The iShares Core S&P 500 ETF (IVV) started trading in May 2000. IVV has generated returns of 5.6 percent since its inception. The ETF charges an expense ratio of 0.04 percent. It closely tracks the S&P 500 and only slight deviations occur over a 12-month period. IVV provides plenty of liquidity and reveals its holdings daily.
- The Vanguard S&P 500 ETF (VOO) is best for its low expenses. It charges an expense ratio of 0.03 percent. Right now, VOO has more than $100 million in assets under management. The ETF has tried to mirror the S&P 500 almost exactly since its inception in 2010. VOO has generated returns of 13.49 percent compared to the S&P’s 13.52 percent.
- The SPDR S&P 500 ETF Trust (SPY) is slightly more expensive than IVV and VOO at 0.0945 percent. SPY is the most heavily-traded ETF on the market. Many investors are happy to invest in SPY due to its popularity and trade frequency.