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There are many stock indices available on the stock market, many of which are one of the important benchmarks in stock calculations. One of the top stock market indices is the S&P 500. The S&P is a well-known stock market index in the United States that is the benchmark of the stock market.
On this occasion, we will discuss the meaning of S&P itself, how it works and what the list of companies is. For those who want to try their hand at stock investing, everything related to S&P is a must-know. Come on, let's just look at the review below!
Definition of S&P 500
As mentioned earlier, the S&P is a stock market index that tracks the stocks of 500 large-cap companies originating from the United States. The S&P also represents the performance of the stock market by reporting the greatest risks and returns. The performance of the S&P is used by investors as a benchmark of the stock market as a whole.
Simply put, the S&P is a stock scoreboard in the United States. If the above explanation is an explanation of S&P in terms of its function and duties, then what does S&P stand for? S&P stands for Standard & Poor's. S&P is a well-known and trusted company that creates financial market indices, data sources and publishes credit ratings for companies.
Credit ratings and company ratings issued by S&P are often used as a benchmark for every investor to make an investment in. S&P was first introduced in 1982, by the Chicago Mercantile Exchange (CME).
The S&P has strict categories for every company to be listed on the S&P. There are at least 4 categories that every company must meet in order to be listed on the index market, namely:
- Must have an office in the territory of the United States.
- Having a large market capitalization, it is recommended to exceed the US$ 3.7 billion lift.
- Already have a public listing or IPO, at least the listing has been going on for 1 year.
- Has a positive trend of Return of Investment.
It is a very difficult and very large category and standard for any company to be listed on the S&P index market. This is also what makes S&P a prestigious and well-known stock market index in the world.
Because, only the big companies that are really successful can be included in the S&P index. This is also very good for companies, because companies will compete with each other to be able to get on the S&P index list and also to stay on the list for a long time.
The longer a company is listed on the S&P index, it shows that it is at the peak of its glory. This can also lead investors to the company. So what makes the S&P index so?
This is because S&P often rebalances every quarter. During the S&P rebalancing process, there are many company stocks that come in and out. This is very good for the circulation of the stock market indices themselves, so it can be seen how prestigious S&P is in the world of stocks.
How Does the S&P 500 Work?
How S&P works is also important to know. The way S&P works is by tracking the market capitalization of companies in stock indices. Market capitalization is the total value of all shares that have been issued by a company, which is listed on the stock market. This value is obtained by multiplying the number of shares issued by the share price itself.Companies with a capitalization of more than US$ 100 billion will receive 10 times the representation compared to companies with a market capitalization of US$ 10 billion. Next, the S&P committee will select companies based on their liquidity, company size and industry.
The selected companies are drawn from 500 companies listed on the S&P stock market index. Companies that are not listed on the S&P 500 stock, or stocks that cannot be listed on the S&P, are not listed on the New York Stock Exchange, Investors Exchange, Nasdaq, or BATS Global Markets.
For those who are curious about how to buy S&P stock, there is an easy way to do it, which is to search on a website, application or stock broker. Let's see how below: One way that is quite easy is to look for an application, website or stock broker that can allow us to buy the S&P 500 stock index.
One of the easiest applications is through Pluang. Because through this application, it allows us to get portfolio diversification easily and simply. So how to buy S&P 500 Pluang shares? Check out the steps below:
- First, download the Pluang Application on Google Play and iOS. Open the app after downloading, then register yourself and create an account.
- In creating an account, we will be asked to fill in several fields. Such as full name, phone number, email address, and so on. Then then, click 'Sign Up'.
- After registering, we will be asked to verify by entering the OTP code. Next, we will be given a number of terms and conditions for the Pluang application. Check 'Agree' and then click on it.
- Then we will be instructed to create a PIN as the Pluang security code. Then we will be asked to verify the second account by sending a photo of ourselves while taking a selfie using an ID card as well.
- After the account creation process is complete, and before buying shares in the S&P 500 Pluang, we must first top up the balance. There are 7 banks that support such as BCA, BNI, Mandiri, BRI, PERMATA, CIMB NIAGA< Bang Danamon.
- The final step is to give shares in the S&P.
How to calculate the S&P 500?
So, how to calculate the S&P 500? For those who don't know how the stock market works, this question is very important to answer, and of course it is mandatory to know. S&P is a stock market index As a stock market index, the method of calculating S&P used is market capitalization weighting, which gives a higher percentage allocation to the largest capitalized companies.
The weighting of each component comes from the sum of the total market capitalization of the S&P 500 stock index. Therefore, to calculate the value, several parameters are used, including:
- Summing up and calculating the total stock market capitalization in the index by adding all the capitalization of each company.
- The weighting of each company in a stock market index is calculated by taking the largest company market capitalization and dividing it by the total amount of the index market capitalization.
- The market capitalization of a company can be calculated based on the current current stock price, and use it with the company's outstanding shares.
S&P 500 Example
The following is an example of S&P from Apple's corporate weight. In the S&P 500 trading view, each company must be counted in order to follow the index market. Here's an example of Apple's weighting in the S&P Index:
- Apple Inc. reported 4,801,589,000 shares of common stock on its income statement for the fourth quarter of 2018. And has a share price of US$ 148.20 in the same year.
- The market capitalization by Apple Inc. is US$ 711.9 billion, the figure from Apple Inc. is used as the basis for calculating the index.
- The total market capitalization of S&P is about $23 trillion, which is the market capitalization for all stocks in the index.
- Therefore, Apple's weight in the S&P Index is 3% and the calculation is $711.9 billion/$23 trillion.
S&P 500 Index Values
The S&P 500 market index is currently at 4,327.16 or (minus) – 32.87 (-0.75%). The above values are in US dollars. The S&P 500 index goes up and down every month. At the previous close, the S&P index was at 4,327.16, the average change in 1 year was up 34.19%. The value of the index affects the attractiveness of investors. There are several criteria for a stock to be included in the S&P 500 chart, including:- Market cap (the company's aggregate market value) should be at US$ 8.2 million
- The total number of shares in the market must be at 50%
- The company must make a profit in the last quarter of each year
- Stock liquidity must be sufficient. Measured from the minimum number of shares every month there are 250,000 shares, which have been made in transactions in the last 6 months
Should I Invest in the S&P 500 Stock Index?
The question that many people ask is whether investing in the S&P is better than investing elsewhere. Should we invest in S&P? There are at least three reasons that can answer this question and make us confident to invest in the S&P stock market index. Let's just look at the review below:1. Suitable for Beginners
The first reason is that it is suitable for beginners. For those of us who are still beginners in the world of business and investment, investing in S&P is the right choice. Because, we don't need to do stock analysis, the stock analysis process has been carried out by S&P as the party that created the index. This makes it very easy for us to invest in the stock market. In addition to being suitable for beginners, S&P is also suitable for those of us who have a tendency to invest passively, not aggressively. The risks of investing in S&P are also very measurable, due to the analysis carried out by S&P itself.2. Simplify Asset Diversification
As we already know, S&P has a list of more than 500 companies. This makes it easier for us, with so many companies listed on the S&P, we don't have to bother buying shares from several companies anymore. By investing in S&P, we have diversified the assets of large companies in various industrial sectors in the United States. A very easy way to invest in stocks, without having to have to struggle and confusion.3. Minimal Additional Costs
However, investing in S&P also has its drawbacks: minimal additional costs for investment managers. However, minimal additional costs for investment managers are certainly not a weakness for us as investors. Precisely as an investor, minimal additional costs are an advantage. This is because S&P investment managers only passively manage investment funds and buy stocks based on the composition of the index. This causes the additional costs needed by investment managers to be very minimal.What are the benefits of the S&P 500?
So what are the benefits of investing in S&P? After listening to some of the reasons why we should invest in the S&P 500 stock market that have been explained earlier, some of the benefits of investing in S&P stock should also be conveyed to emphasize the advantages of S&P as a stock market index itself. Here are some of the benefits of investing in S&P that we can get, namely:- We will get greater access and prestige to the capital market with the largest capitalization value in the world.
- We can invest in the largest companies in the United States, the materials of the largest companies in the world, without having to buy their shares individually.
- The market capitalization owned by the S&P is higher than that of other stock market indices.
- Investing in S&P also has another benefit: you can sell and buy stocks at the same time right away.
List of S&P 500 Index Companies
What are the companies on the S&P 500 list and what are the code names of the companies on the S&P 500 futures index? The following is a list of the companies in question, along with the code names used:| Stock | Code |
| Apple | AAPL |
| Microsoft | MSFT |
| Amazon | AMZN |
| Facebook Inc A | FB |
| Alphabet Inc A | GOOGL |
| Alphabet Inc C | GOOG |
| Berkshire Hathaway | BRK.B |
| Johnson & Johnson | JNJ |
| Procter & Gamble | PG |
| Nvidia | NVDA |
As we can see from the list of companies above, there are several company names that we already know as companies that have a large amount of capitalization, and are reputable companies.
Such as Apple, Google, Microsoft and Facebook. It's also no wonder why the list of companies above is included in the S&P 500. Because of the categories and criteria determined by S&P itself.
In the previous discussion, we have learned that the criteria determined by S&P are those of large companies only. Naturally, the above large companies are included in the S&P stock market index list.
Is the S&P 500 the Same as Other Stock Market Indices?
The question of whether the S&P is the same as other stock market indices, the answer is of course clearly different. Because usually each stock market index has different criteria. For example, let's compare the S&P to another stock market index, the Dow Jones Industrial Average. The Dow Jones only tracks the stock prices of the 30 most representative companies in their respective industries, in contrast to the S&P which tracks up to 500 companies.
However, the Dow Jones is also a market index that accounts for almost a quarter of the US stock market, which shows that the Dow Jones is also the most trusted and most quoted market index in the world, just like the S&P. So is the S&P 500 Indonesia the same as other stock market indices?
The answer is obviously of course different. Because of the criteria and some different provisions imposed by the respective stock market index. That's all about the S&P 500, and other explanations related to stock market indices. Is the S&P 500 a stock market index that suits us? If so, then we should try to start focusing on understanding how the stock market works and some of the existing stock market indices.
