A benchmark, not the whole market
Large US companies only.
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The magic of compound interestIndex funds 101: boring beats cleverWhat an ETF isIndex funds, mutual funds and ETFs comparedThe S&P 500, explainedTotal market fundsInternational diversificationSector and thematic fundsThe three-fund portfolio and rebalancingDollar-cost averaging: investing without timing the market
The S&P 500, explained
About 500 large US companies, weighted by size. Widely used as a benchmark — and not the whole market.
In this lesson you will
- Describe what the S&P 500 contains
- Explain cap weighting and concentration
- Know what the index leaves out
The S&P 500 is an index of about 500 large US companies, chosen by a committee using published rules on size, profitability and trading. It is widely used as a benchmark for the US stock market.
How it is weighted
Companies are weighted by float-adjusted market capitalisation, so the largest companies have the most influence. A handful of very large companies can make up a substantial share of the index.
What it does not include
- Small and many mid-sized US companies.
- Companies outside the US.
- Bonds and cash.
Why it matters to you
Many index funds track it, and many active funds are compared against it. When people say “the market”, they often mean the S&P 500.
Concentration
Because of cap weighting, an S&P 500 fund can be more concentrated in its biggest holdings than “500 companies” suggests. Check a fund’s top-10 holdings to see how much they make up. Education only — GetGuac does not recommend specific funds or investments.
By the GetGuac team · Editorial policy
Three ideas to keep
Weighted by size
The biggest companies lead.
Check the top 10
Concentration hides in “500”.
Do it in 4 steps
Learn the index rules
Large US companies, committee chosen.
Check top holdings
Of any S&P 500 fund.
Note what is missing
Small caps, international, bonds.
Decide if you need more
For diversification.
How weighting concentrates
Made-up mini-index of 5 companies, weighted by market cap.
| Company | Market cap | Weight |
|---|---|---|
| A | $400 billion | 40% |
| B | $300 billion | 30% |
| C | $150 billion | 15% |
| D | $100 billion | 10% |
| E | $50 billion | 5% |
| Total | $1 trillion | 100% |
Two of five companies make up 70% of this index — the same effect, at larger scale, appears in real cap-weighted indexes.
Where this usually goes wrong
- Assuming the S&P 500 is the entire market
- Ignoring concentration
- Holding several funds that track the same index
Look up an S&P 500 fund’s top 10 holdings and add up their weights.
Tools and guides for this lesson
Quick quiz
1. The S&P 500 tracks…
2. It is weighted by…
3. Which is not in the S&P 500?
0 of 3 answered
Puzzle
In a cap-weighted index worth $2 trillion, one company is worth $140 billion. What is its weight?
Show the answer
7%
$140 billion ÷ $2,000 billion = 0.07.