by Ernesto R. Martin

S&P stands for Standard & Poor, a financial services company. The S&P 500 Index* is a measure, reported daily in the news, of the value of the 500 largest U.S. companies; Standard & Poor revises the list of companies during the year, replacing those that are no longer among the 500 largest (e.g., because their value has diminished) with others whose value now puts them among the 500 largest. S&P 500 index mutual funds invest in these 500 companies on the basis of size. So in an investment of $10,000, $80 might go to the largest of the 500 firms and $1 might go to the smallest. Size of a company is determined by its market capitalization, which is the cumulative value of all the shares in circulation, in other words, what it would cost for you to buy at current prices all the shares from all the shareholders of that company.

* Other indexes are the Dow Jones (or simply The Dow, which has an annual performance very similar to that of the S&P 500 Index) and the Nasdaq.