S&P 500 Stocks: What You Need to Know

If you’re trying to buy S&P 500 stock, the first thing to understand is that it technically doesn't exist: The S&P 500 isn't a stock; it's a list of about 500 publicly traded companies. You can, however, invest in an S&P 500 index fund, which contains all the same stocks.

How to buy S&P 500 stocks — and why you might want to

Among many long-term investors, buying into the S&P 500 is considered one of the most prudent ways to get into the stock market. The market index has posted historical average annual returns of around 10% before adjusting for inflation (though, as always, past performance never guarantees future success).

The companies in the S&P 500 meet specific criteria, mostly based on market capitalization, which measures a company's value. The combined stock market performance of these companies makes up the performance of the S&P 500.

» Learn more about the S&P 500 companies

List of S&P 500 stocks

This chart shows the top-performing stocks in the S&P 500, based on YTD returns.

Data is sourced from Google Finance and may be delayed. For informational purposes only.

In theory, you could buy all 500-ish stocks that make up the S&P 500. In practice? Not so much. That’s generally far too many stocks for an average investor to individually purchase and manage.

What’s more, the index is market cap–weighted, meaning companies with large market caps make up a larger portion of the index. For context, the top 10 largest companies in the S&P 500 currently contribute to about 31% of the index’s performance. You would have to do a lot of math to determine how much of each stock you’d need to buy to mirror the market cap-weighted structure and returns of the S&P 500.

However, if you’re looking to add a few individual stocks to your portfolio, the S&P 500 is one place to start your search. These large-cap companies are typically considered more stable than smaller companies, and many pay dividends that can be used as income or reinvested to promote higher future gains. If you’re not sure how to tell if a stock is currently listed in the S&P 500, you can use a stock screener to filter for only those listed in the index. There are several free stock screeners available online if your broker doesn't offer one.

Keep in mind that most financial advisors recommend only holding between 5% and 10% of your total investments in individual stocks.

» Read to get started? Learn how to buy stocks

The other option: S&P 500 funds

Rather than investing individually in every company in the S&P 500, you can purchase a single investment in an S&P 500 index fund, which distributes the amount you invest across all the companies in the index.

These index funds are weighted to mirror the S&P 500, so more of your investment is directed toward the largest companies and less of it toward the smallest companies. The end goal is to offer investors the same returns as the S&P 500. Remember that 10% average annual return figure from above? Given a long enough timeline — say five years or more — that’s in the ballpark of what these index funds will aim to return, too.

Our article on how to invest in the S&P 500 goes over all the details about investing in S&P 500 index funds or ETFs.

S&P 500 stock returns

Looking at the S&P 500 itself can give you a good idea of what kind of returns S&P 500 ETFs have generated in the past. Here’s how the S&P 500 has performed historically since 1990, as well as how it’s performed more recently and what it’s doing today. It’s always important to remember, however, that past performance in no way guarantees future results.