Trading stocks on the S&P 500 means that you are investing in the American industries mainly. The index is widely regarded as the best single gauge when it comes to large cap American companies, which are benchmarked with over US$3.5 trillion, and assets comprising of approximately US$ 915 billion of this total. As the name suggests, the index has 500 components, with the majority being leading American industries. In 1923, the S&Ps primary stock market index was the S&P 90; it wasn’t till 1957 that it became the S&P 500 index as we know it today. The index reached its highest point in 2000 during the dot com era. After the bubble burst, it declined by 50% in the bear market that followed for two years.
The S&P 500 has a committee, which selects what companies are allowed to list on its index. Companies which are not trading publicly, and that do not have enough liquidity, are not allowed to list on the index. When it comes to weighting the index, it is done by calculating the market caps number of shares that are available for public trading. When one company is removed from the index and another with a different market cap takes its place, the index changes its divisor accordingly to maintain the same value of the S&P 500.
Investors who are looking to trade on the Index can stock pick from leading American industries, or they can reduce risk to their portfolio by investing in some of the ETFs available or mutual funds. By investing in these, you can take advantage of the shares that include S&P 500 equities and securities. One of these ETFs trades between 300-400 million shares in a single day. In the US stock market today, this is the highest traded volume on any of the exchanges. Stock picking and investing in these funds should provide you with a strong portfolio.
There are a number of things for you to consider when buying funds on the S&P 500, since most funds may look the same or have the same stocks in them. One thing to consider is the cost that the brokers or investment companies charge you for maintaining the fund. These costs will differ for each company, and you should choose what suits you best. Bear in mind that these fees will eat into any profit you might get. See what other services your broker provides, like technical analysis, stock tips or if they will provide you with material such as a Stock Market Video or books to learn about investing.