Pearl Financial

I talk a lot about the S&P 500 when setting up portfolios with clients.

But what even is the S&P 500, and how does it work?

The S&P 500 is made up of the top 500 US companies. That's right, five hundred, count 'em! And while it offers plenty of diversification, not all companies within the S&P 500 are valued equally.

In fact, when you take a closer look at the chart, it's pretty obvious that the tech giants like Apple, Microsoft, Amazon, and Google are the big cheese, comprising a whopping 20% of the index's total value 😱

Another topic to bring up is that not all the names inside the S&P 500 are as recognizable as Tesla or Facebook. Ever heard of Fastenal? Ameren? Prologis? They're 3 pieces of this 500 sliced pie 🍰

Another fun fact about the S&P 500 is that it's constantly changing and evolving. The index we know today is way different from what it was 20 years ago. As companies grow and shrink, the S&P 500 adjusts to track the top 500 US companies. So without lifting a finger, investors are riding the wave of the most prominent companies in the US market. Talk about a free ride!

To sum it up, the S&P 500 is a vital index that provides insight into the largest publicly traded companies in the US and their market capitalization. And even though it's just a fraction of all publicly traded companies, it represents a significant portion of their total value and almost half of the value of all publicly traded companies worldwide.

But don't go putting all your eggs in this one basket. Diversification is key, my friends! Investors should gain exposure to international markets and bonds to create a well-rounded portfolio. Remember, knowledge, diversification, and time are the greatest keys to building wealth.