# What is the S&P 500 index? How it works and what's in it

> The S&P 500 tracks about 500 large US companies. Learn how stocks get in, how the index is weighted, how to invest in it, and how far it has fallen before.

Written by [Tactfolio research team](https://tactfolio.com/about/editorial-policy.md), published 2026-10-16, updated 2026-10-16.

The S&P 500 index is a list of about 500 of the largest companies in the United States, combined into one number. When their stock prices rise, the number rises. People use it as a quick read on the US stock market and as the yardstick most investments are measured against. You can't buy the index itself, but you can buy a fund that copies it.

## Key points

- The S&P 500 follows about 500 large US companies chosen by a committee at S&P Dow Jones Indices.
- Bigger companies count more. A company worth twice as much moves the S&P 500 twice as much.
- It covers about 80% of the value of all US stocks that the public can trade ([S&P Dow Jones Indices](https://www.spglobal.com/spdji/en/indices/equity/sp-500/)).
- To invest in it, people buy an index fund such as SPY, IVV or VOO.
- It has grown over long periods, but it fell about 57% from 2007 to 2009 and took years to recover.

## What is the S&P 500 index?

The S&P 500 is a **stock market index**. A stock market index is a single number that sums up the prices of a group of stocks ([Investor.gov](https://www.investor.gov/introduction-investing/investing-basics/glossary/market-index)). When most of its stocks go up, the number goes up.

S&P Dow Jones Indices runs the S&P 500. It began in its current form in 1957. "S&P" stands for Standard & Poor's, and "500" is the rough number of companies.

The real count of stocks is a little over 500. A few companies, such as Alphabet (Google's parent), have two kinds of shares, and both are counted.

## How does a company get into the S&P 500?

A committee picks the companies. It follows written rules, and it also uses judgment. The main rules, from the [S&P US indices methodology](https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp-us-indices.pdf), are:

- The company is based in the US.
- It is large. S&P sets a minimum company value and raises it over time. In 2026 that minimum is tens of billions of dollars.
- Many of its shares are available to the public, and they trade often.
- It made a profit over its last four quarters added together, and in its latest quarter.

Companies also leave. A company can be dropped when it shrinks, gets bought, or stops meeting the rules. The list changes every year.

## How is the S&P 500 calculated?

The S&P 500 gives each company a weight based on its size. Size here means **market value**, also called market cap. Market value is the share price times the number of shares.

Here is an example with made-up round numbers. Say all the companies together are worth $50 trillion. Company A is worth $3 trillion. Company A then makes up 6% of the S&P 500. If Company A's stock rises 10% and nothing else moves, the S&P 500 rises about 0.6%.

S&P counts only shares the public can buy. Shares locked up by founders or governments are left out. This is called **float adjustment**.

Because of this weighting, a small group of giant companies can drive the whole S&P 500. In recent years, a handful of large tech companies such as Apple, Microsoft and Nvidia have had a big effect on its moves.

## How can you invest in the S&P 500?

You can't buy the S&P 500 directly, because it is only a list and a number. Instead, you buy an **index fund**. An index fund holds the same stocks in the same amounts, so it rises and falls with the index ([Investor.gov](https://www.investor.gov/introduction-investing/investing-basics/glossary/index-fund)).

Three of the best-known S&P 500 funds are ETFs, which means they trade on an exchange like a stock:

| Fund | Ticker | Launched |
| --- | --- | --- |
| SPDR S&P 500 ETF Trust | SPY | 1993 |
| iShares Core S&P 500 ETF | IVV | 2000 |
| Vanguard S&P 500 ETF | VOO | 2010 |

They follow the same index, so their results are very close. Small gaps come from fees and how each fund is set up. Many people hold these funds in a retirement account, such as a 401(k) or an IRA ([IRA vs 401(k)](https://tactfolio.com/learn/ira-vs-401k.md)). Some also sell [covered calls](https://tactfolio.com/learn/covered-call.md) on them for extra income. Check each fund's own page, such as [SPY's](https://www.ssga.com/us/en/intermediary/etfs/spdr-sp-500-etf-trust-spy), for its current fee. Our guide to [S&P 500 index funds](https://tactfolio.com/learn/sp500-index-funds.md) compares the fees and fund types side by side.

## How has the S&P 500 done over time?

The S&P 500 has grown over long periods, with deep falls along the way. Here are some real drops, using the index's daily closing values from S&P Dow Jones Indices, without dividends:

| Period | How much it fell |
| --- | --- |
| October 2007 to March 2009 | about 57% |
| February to March 2020 | about 34%, in about five weeks |
| All of 2022 | about 19% over the year |

The awkward part is how long recovery can take. The S&P 500 set a high in March 2000. It did not close above that level for good until 2013, about 13 years later. Dividends helped holders during that time, but it was still a long wait.

## Why does everyone compare to the S&P 500?

The S&P 500 is cheap to own and easy to follow. That makes it a fair test. If a strategy can't beat an S&P 500 fund after costs, a plain index fund may be the simpler choice.

Return is only half the story. A strategy that earns a little less but falls half as far may suit some people better. [How to read a backtest](https://tactfolio.com/docs/concepts/reading-a-backtest.md) explains how to weigh drawdowns against returns.

## Common mistakes

- Thinking the S&P 500 is the whole market. It leaves out small companies and companies outside the US.
- Thinking big means safe. It has lost more than half its value before.
- Selling after a big fall and buying after a big rise. That often locks in losses.
- Panicking at a [gap down](https://tactfolio.com/learn/stock-gap.md) at the open. Big overnight moves often come from news that takes time to judge.
- Picking an S&P 500 fund only by past return. The funds are nearly the same, so fees matter more.

## Try it on Tactfolio

Every Tactfolio backtest compares a strategy with SPY, an S&P 500 fund, by default. The [Faber 10-month moving average model](https://tactfolio.com/strategies/faber-10-month-moving-average.md) is a simple rule built on the S&P 500. It holds the S&P 500 while its price is above its 10-month average, and Treasury bills when it is below. You can open it, read every rule and see its hypothetical backtest. For a balanced mix, see the [60/40 portfolio](https://tactfolio.com/strategies/60-40-portfolio.md). Stocks that lead the S&P 500 often show [momentum](https://tactfolio.com/learn/momentum-stocks.md), and some investors add [commodities](https://tactfolio.com/learn/commodities-explained.md) for balance.

## Common questions

### How many companies are in the S&P 500?

About 500 companies. The number of stocks is a little higher, around 503, because a few companies have two share classes. The exact count changes when companies join or leave.

### Is the S&P 500 the same as the Dow?

No. The Dow Jones Industrial Average follows only 30 large companies and weights them by share price. The S&P 500 follows about 500 companies and weights them by market value, so it gives a broader picture.

### Can you lose money in an S&P 500 index fund?

Yes. An S&P 500 fund rises and falls with the index. It lost about 57% from 2007 to 2009 and about 34% in early 2020. Over short periods, losses are common.

### Does the S&P 500 include dividends?

The main S&P 500 number is a price index, so it leaves dividends out. S&P also publishes a total return version that adds them back. Funds like SPY pay the dividends to their holders. Tactfolio backtests use prices adjusted for dividends.

### What is the difference between the S&P 500 and an S&P 500 fund?

The S&P 500 is the list and the number. A fund is what you can actually buy. The fund holds the stocks on the list and charges a small yearly fee.

## Put it into practice

- [SPY vs VOO](https://tactfolio.com/etf-comparisons/spy-vs-voo.md): SPY vs VOO: what each ETF holds, what it costs, and how both did over the same dates, with yearly returns and worst drops.
- [VOO: Vanguard S&P 500 ETF](https://tactfolio.com/etf/voo.md): What VOO holds, its 0.03% yearly fee, returns by year, its worst drop, and which Tactfolio strategies hold it.
- [CAGR calculator](https://tactfolio.com/trading-tools/cagr-calculator.md): Turn a starting value, an ending value and the years between into a compound annual growth rate, with a worked example.
- [SPY: State Street SPDR S&P 500 ETF Trust](https://tactfolio.com/etf/spy.md): What SPY holds, its 0.0945% yearly fee, returns by year, its worst drop, and which Tactfolio strategies hold it.
- [IVV: iShares Core S&P 500 ETF](https://tactfolio.com/etf/ivv.md): What IVV holds, its 0.03% yearly fee, returns by year, its worst drop, and which Tactfolio strategies hold it.

## Sources

- [S&P 500](https://www.spglobal.com/spdji/en/indices/equity/sp-500/), S&P Dow Jones Indices, accessed 2026-10-16
- [S&P U.S. Indices Methodology](https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp-us-indices.pdf), S&P Dow Jones Indices, accessed 2026-10-16
- [Market index](https://www.investor.gov/introduction-investing/investing-basics/glossary/market-index), Investor.gov (SEC), accessed 2026-10-16
- [Index fund](https://www.investor.gov/introduction-investing/investing-basics/glossary/index-fund), Investor.gov (SEC), accessed 2026-10-16
- [SPDR S&P 500 ETF Trust (SPY)](https://www.ssga.com/us/en/intermediary/etfs/spdr-sp-500-etf-trust-spy), State Street Global Advisors, accessed 2026-10-16