There are an endless number of gauges, indices, and ratios that you can use to track the equities market. The Standard and Poor’s 500 Index (S&P 500) is perhaps the most popular and broadly used tracking tool. This is because the Index has been around since 1926 and tracks 500 of the largest publicly traded companies. It doesn’t track “THE 500” largest… but the lion’s share of the large-cap equities. The S&P 500 is a testament to the benefits of a strict long term investment approach. Let’s take a look at some key facts about the S & P 500.
1- The Standard and Poor’s Index became a composite Index in 1926 when it originally tracked 90 publicly traded companies. It didn’t officially become the S&P 500 Index until 1957 when it expanded to 500 companies.
2- Since 1957, the historical average annual return has been slightly higher at 10.67%. (*Data through 12/31/21 including dividends).
3- The S&P 500 is a market-cap weighted Index. The weighting of each company in the Index is based on each equities current market capitalization. (This differs from the Dow Jones which is a price weighted Index). This means that the larger the company in the Index the bigger the impact it has on the pricing of the Index. The minimum market cap requirement for inclusion is $13.1 Billion.
4- There are currently 505 stocks in the S & P 500. This is because some participants have dual-listed share classes such as Berkshire Hathaway and Google.
5- Apple currently carries the largest weighting in the S & P 500, followed by Microsoft and Amazon. Apple account for roughly 6.78% of the Index. (*As of 7/6/22).
6- The current yield of the S&P 500 is 1.61%. The historical average dividend yield is 4.3%. Since the year 2000, the average dividend yield has been 1.86%. This is due to the type of companies that have made up the Index over the years.
7- In 96 years of existence, the S & P has been positive on an annual basis 74% of the time.
- 71 up years with an average return of 21.33% in those years
- 25 down years with an average return of -13.24% in those years
8- The largest 1-year return in history was 53.99% in 1933. The longest annual win streak stands at 9 years which has happened twice.
9- Since inception, the Index has only closed down over 20% for a year 6 times. There has been 36 years where the Index posted a return of +20% or better. The S&P has closed up over 30% for the year in 17 different years.
10- The S&P Index is up over 21,000% since it’s inception in 1926. (*As of 7/6/22).
it seems like every week there is a new Index to follow or “specialized fund” to invest in. The Standard and Poor’s 500 has stood the test of time and in all likelihood will do so for years to come. Whether you decide to invest in a passive fund that tracks this Index; or just use it as a gauge for the market it’s something to always keep on your radar. This is also a reminder as to why focusing on the bigger picture and long term returns is important. What will the market do tomorrow, or next week? Your guess is as good as mine; but I believe the numbers are pretty clear as to what you can expect from the market in 3, 5, or 10 years…