The S&P 500: What Is It and How Do I Make Money?

Own a Piece of Leading Global Companies

“The S&P what? What is the 500 for? What do you mean I get to be part owner of the world’s largest corporations?” Typically, these are the remarks that are made when I mention that everyone should have some money invested in the S&P 500. To answer some of the questions stated above, here are a few key things you should think about, whether you are just getting into investing or expanding on your current portfolio.

If you are looking to invest your money in a “set it and forget it” fund (I should really include an image of George Foreman), then stash your cash with some of the world’s largest companies that are operating today. The S&P 500 is just that, it is a list of the 500 largest companies that are operating in the U.S. and across the globe. Think of companies like Apple, Bank of America, Chipotle, Coca-Cola, Disney, Home Depot, Visa, Walmart, literally every-day brands you could not imagine your life without. Here is a full-list of these companies in-case you wanted to see all of them: https://www.slickcharts.com/sp500.

A lot of people think of investing as risky or gambling with your money. If you are putting your money in a business that no one has heard of and is worth pennies per share, then yes, that is a gamble and you will probably lose your money like the majority of people do that visit Vegas every year.

However, when you are investing in companies that continue to add value to society through their services and products, you are simply reaping a reward for participating in a society that requires these services and products anyways.

Are people needing to eat? Yes. Do people need a place to live? Yep. Do people need to travel somewhere via a car, train or plane? Typically. Are people getting sick that require healthcare services? You bet. Entertainment, who does not like to be entertained? Most people love it. There is a company for that, too. This is a small list of services that are being provided by some of those very companies in the S&P 500.

Seeing that most of these companies are not going anywhere, how do you as a current or future investor make money from them? When you invest in funds like Vanguard S&P 500 ETF (VOO — https://www.etf.com/VOO#overview) you automatically have your money diversified across those 500 companies. There are many other funds that allow you to be diversified across those businesses, but this is one of my favorites due to its low expense ratio and diversified nature.

As economies grow, as these businesses continue to create and expand their brand, you make money with them. Not only does the value of their stock price go up, but remember, most of these companies pay out dividends every single quarter (Dividends are a portion of their profits that go to shareholders, which is you, the investor).

How does a company’s stock price go up? Think of a business like Disney. When they came out with Disney+ (Baby Yoda, anyone?), they created an additional service and product that people were willing to pay for. As people pay for that service and their profits go up, so does their stock’s value.

Since the inception of the S&P 500, which started in 1926 as the “Composite Index” (Which only had 90 companies listed in it at the time), its annual return has been 10%. Now, are there bad years and times of economic stagnation? Yes, there always will be. There are also years and decades of tremendous growth that has allowed families, communities and companies to expand in a way that has brought great fortune and wealth along the way.

The golden years are not just behind us. Companies are still growing. Technology keeps advancing. People are joining the global economy in droves. Nations, that were once considered third-world countries, are developing economically at a pace that will soon rival developed economies. As these countries continue to grow, guess what companies will be there to continue to provide those products and services? Most of the ones that are listed on the S&P 500.

*This is not financial advice. For educational purposes only.