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What is the S&P 500?

SP500

 

The S&P 500 is spoken about on every media outlet you can think of from print to online. No matter where you turn you are bound to hear something about it.  There is a lot of focus placed on this index and we wanted to take a minute and explain “What is the S&P 500?”

The S&P 500, or S&P for short, tracks the 500 largest publicly-traded companies in the United States. Although this is a broader index than the DJIA it still only tracks 500 companies that are large-cap in nature. Does following the ups and downs of the S&P make sense for you, your portfolio, or the markets in general? This certainly is a better way to gauge things than looking at the Dow Jones Industrial Average, but it still does not provide any insight into how companies other than large-cap are faring. This may give you a good idea of how that portion of your assets are performing, but depending on your allocation it still will not provide a full picture. We also discussed this recently in our Mitlin Minute, What is the S&P?. This index is regarded as the best gauge of large-cap US equities available, a much better indicator than the Dow.

Hopefully, you have a diversified portfolio, and if you do there will be many assets in your portfolio that will not benchmark well against the S&P 500. Assets invested in companies that are considered small-cap, mid-cap, and international markets will not be represented well by this index. The S&P is a good indicator of how large-cap US equities are performing, but may not give a clear picture of the broader markets as a whole. When evaluating your portfolio, it is important to have appropriate benchmarks to compare your portfolio. The S&P will certainly provide a good benchmark for some of your holdings, but certainly not all of them. You may need to use several benchmarks to gauge your whole portfolio. It will be important to review the right holdings with the right benchmarks to get an accurate picture, otherwise, the data may be meaningless. As an example, you would not want to gauge a mutual fund or ETF that is made up of small companies from an emerging economy against the S&P 500. This does not provide any assistance whatsoever. It the proverbial comparison of apples vs. oranges.

Make sure you understand how your portfolio is positioned and the best ways to benchmark how your assets are performing. The S&P 500 has very little correlation with a portfolio that has a vast majority of assets not in large-cap companies and will not provide you with a good indication of how your portfolio is performing during bull or bear markets.

We would be happy to discuss your situation regarding the benchmarks being used to evaluate your portfolio and what indexes would be most relevant to you. Just contact us, Mitlin Financial, at (844) 4-MITLIN x12 to schedule a time for this review. Be sure to share this article with friends, family, and business acquaintances who might be interested too. We look forward to helping you, and them, get on the right path and stay there.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Tags: Mitlin Financial, Financial Future, Benchmark, S&P 500, S&P Index, What is?

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