Even if you are not invested in the US market, I’m sure you would have heard of the S&P 500 Index – it is one of the 3 main stock market indexes in the United States (with the other 2 being the Dow Jones Industrial Average, and the NASDAQ.)

In this post, I’ll be sharing some of the essentials about the index, to give you a better understanding of what it is:

What the Index is:

The Standard & Poor 500 Index, or S&P 500 index, as it’s commonly known, measures the performance of the 500 largest US-listed companies (hence the number 500 in the name of the index.)

However, as at the time of writing (06 March 2023), the S&P 500 index has 507 stocks – the reason being some companies have multiple classes of equity shares (such as Alphabet Inc., where there is Alphabet Class A (NASDAQ:GOOGL), as well as Alphabet Class C (NASDAQ:GOOG) – the main difference between the 2 classes are voting rights, with the former having one voting right per share, and the latter having no voting rights; also, in terms of trading liquidity, the former is more liquid than the latter.)

You can track the movement of the S&P 500 index via the ticker symbol $SPX.

Sectors that Form the Index, along with their Weightage:

Companies listed in the index come from the following 11 sectors, along with their weightage in percentage terms (in brackets) as at 06 March 2023:

  • Information Technology (24.45%)
  • Healthcare (14.47%)
  • Financial Services (13.41%)
  • Consumer Cyclical (10.76%)
  • Communication Services (8.81%)
  • Industrials (8.19%)
  • Consumer Defense (6.90%)
  • Energy (4.79%)
  • Utilities (2.98%)
  • Real Estate (2.77%)
  • Basic Materials (2.47%)

For those who prefer to invest in the individual sectors instead of the broad index, you may do so, and I will be sharing more on companies in each of the 11 sectors above in separate posts in due course.

As you can see from the above, 4 sectors (in information technology, healthcare, financial services, and consumer cyclical) make up 63.09% weightage of the S&P 500 index – meaning to say that any positive or negative movements in companies in the 4 sectors will have an influence on how the index moves.

Investing in the Index:

While you can’t invest in the index directly, you can invest in the ETF that tracks the index – via the ticker symbol $SPY.

By investing in the S&P 500 ETF, you get an instant diversification in that you automatically become a shareholder of 500 of the biggest US listed companies.

If you are new to the US market, the minimum number of shares is just one (1) – at the time of writing, the $SPX is trading at US$404.47 (as at market close on 06 March 2023) – meaning the minimum amount you need to invest in one share of the S&P 500 ETF is about S$543.82 (based on the exchange rate of US$1.00 = SGD$1.34 as at 07 March 2023), plus any brokerage fees (where the amount is dependent on the brokerage platform you use – if you were to use Interactive Brokers [a brokerage platform I personally use to buy and sell US shares], the brokerage fees is less than US$2.00 – which equates to about S$2.69 based on the above exchange rate.)

Dividend Payout of the Index ETF:

From what I understand, you’ll receive a dividend payout on a quarterly basis (with payouts typically made in March, June, September, and December.) Currently, the dividend yield of the Index ETF is about 1.76%.

However, do take note that if you are a Singaporean investing in the ETF, all payouts declared are subjected to a 30.0% withholding tax – meaning to say that the amount you eventually receive will be 30.0% lesser than the amount declared – as such, the eventual dividend yield will be just 1.23%.

That said, when I invest in a US company, I am focused on making capital gains – meaning the difference between the eventual price when I divest and my average invested price.

So, how has the S&P 500 Index performed over the years? Let us take a closer look in the next section.

Performance of S&P 500 Index between 1928 and 2022:

The following table illustrates the performance of the S&P 500 Index between 1928 and 2022 (a total of 95 years):

Growth/Decline Compared
to Previous Year
No. of Years (along with the Specific Years)
-50% to -40%1 years (in 1931)
-40% to -30%2 years (in 1937 and 2008)
-30% to -20%3 years (in 1930, 1974, and 2002)
-20% to -10%8 years (in 1929, 1932, 1941, 1957, 1966, 1973, 2001, and 2022)
-10% to 0%12 years (in 1934, 1939, 1940, 1946, 1953, 1962, 1969, 1977, 1981, 1990, 2000, and 2018)
0% to +10%14 years (in 1947, 1948, 1956, 1960, 1970, 1978, 1984, 1987, 1992, 1994, 2005, 2007, 2011, and 2015)
+10% to +20%19 years (in 1944, 1952, 1959, 1964, 1965, 1968, 1971, 1972, 1979, 1986, 1988, 1993, 2004, 2006, 2010, 2012, 2014, 2016, and 2020)
+20% to +30%17 years (in 1942, 1943, 1949, 1951, 1961, 1963, 1967, 1976, 1982, 1983, 1996, 1998, 1999, 2003, 2009, 2017, and 2021)
+30% to +40%15 years (in 1928, 1936, 1938, 1945, 1950, 1955, 1975, 1980, 1985, 1989, 1991, 1995, 1997, 2013, and 2019)
+40% to +50%3 years (in 1933, 1935, and 1958)
+50% to +60%1 year (in 1954)

As you can see from the above, the number of years which the S&P 500 Index closed the year higher than the year before (at 69 years) is way more than the number of years which closed lower (at just 26 years) – meaning to say out of the 95 years, 72.6% of the time the Index closed higher, while for the remaining 27.4% of the time, it closed lower – an impressive feat if you ask me!

Needless to say, looking at the yearly movement of the S&P 500 Index, it is very clear that the general direction over the years is the word “up”:

The S&P 500 Index have been on an upward moving trend over the years.
The S&P 500 Index have been on an upward moving trend over the years.

What this means to say is, in general, the longer you stay invested in the S&P 500 Index, especially if you are invested in it when it is trading at a multi-year low price, the higher the potential capital appreciation – so having a long-term mindset when you invest in the US index is key.

Key Constituents of the S&P 500 Index:

The following 9 companies in total have a 26.68% weightage (as at 06 March 2023) towards the S&P 500 Index – I’m sure you’ll be able to immediately recognise more than half of them even if you are not living in the United States:

1. Apple Inc. ($AAPL, 6.59% weightage)

At the time of writing, Apple Inc., one of the largest technology companies in the world, has the heaviest weightage on the S&P 500 Index at 6.59%.

Founded by the late Steve Jobs, together with Steve Wozniak, and Ronald Wayne on 1st April 1976, Apple Inc. started off as a company selling personal computers (Macintosh), but today, it has a plethora of products and services available including consumer electronics (phones, tablets, watches, computers, laptops, etc.), software (their equivalent of Microsoft’s Office package in Pages [like Microsoft Word], Keynote [like Microsoft PowerPoint], and Numbers [like Microsoft Excel]), along with services (Apple Music, Apple TV, iCloud.)

Apple Inc.’s financial performances over the last 5 years (between FY2018 and FY2022) have also been on an upward moving trend – with its total revenue growing from $265.6bn to $394.3bn (a compound annual growth rate, or CAGR of 8.2%), and its net profit improving from $59.5bn to $99.8bn (a CAGR of 10.9%.) Its dividend payout have also went up from 71.0 cents/share to 90.0 cents/share (a CAGR of 4.9%), with payouts on a quarterly basis.

2. Microsoft Corporation ($MSFT, 5.82% weightage)

Most of us use computers that run on the Windows Operating System by Microsoft Corporation, and also use the Microsoft Office suite of products (Word, Excel, PowerPoint, and Outlook) at work as well as at home. Professionals will very likely have an account with the tech company’s professional networking site LinkedIn. For those with the Microsoft Office 365 subscription, you may also be extensively using the Microsoft OneDrive cloud to store your files, documents, photos, and videos. Last but not least, gamers will also be very familiar with Microsoft’s gaming console Xbox – all these are some of the main products and services produced by the US-listed tech company, which has the second highest weightage in the S&P 500 Index at 5.82%.

Microsoft Corporation’s financial performances over the last 5 years (between FY2018 and FY2022) has been impressive too – with its total revenue growing from $110.4bn to $198.3bn (a CAGR of 12.4%), and its net profit soaring from $16.6bn to $72.7bn (a CAGR of 34.4%.) Dividend payouts have also went up from $1.68/share to $2.48/share (a CAGR of 8.1%), with payouts on a quarterly basis.

3. Amazon.com Inc. ($AMZN, 3.01% weightage)

Founded in 1994 by Jeff Bezos, Amazon.com Inc. started off as an online bookstore, but later on expanded to offer products in many different categories (ranging from electronics to clothes and groceries, etc.) Another notable service by the tech giant is its cloud computing service known as Amazon Web Services (AWS), which is currently a market leader with about 32% share.

Other products and services provided by the tech giant include its electronic reading device Kindle (along with its huge library of books on Amazon.com), Amazon Prime membership (where members enjoy special deals, along with free shipping on over 100 million items).

In terms of the company’s financial performance, its total revenue over a 5-year period (between FY2018 and FY2022) went up from $232.9bn to $514.0bn (a CAGR of 17.2%), but its net profit went up from $10.1bn in FY2018 to $33.4bn in FY2021, before sinking into a net loss of -$2.7bn in FY2022 (largely due to a pre-tax valuation loss from its investment in Rivian Automotive Inc.)

Finally, the tech company did not declare any dividend payouts throughout the 5 years I have looked at.

4. Alphabet Inc. (Class A, $GOOGL, 1.96% weightage, and Class C, $GOOG, 1.81% weightage)

Some may not be familiar with the company Alphabet Inc. – they are the parent company of the world’s #1 search engine, Google, along with its suite of service offerings including Gmail, Google Drive, Google Maps, Google Play, and YouTube. Most of the company’s revenue comes from advertisements on its sites, subscription from users of its cloud computing service Google Cloud, and YouTube Premium.

As mentioned in the beginning of this post, there are 2 classes of Alphabet shares – Class A, as well as Class C – as I’ve already highlighted the key differences earlier on, I won’t be doing so again.

Looking at the tech giant’s financial performances over the last 5 years (between FY2018 and FY2022), it have also exhibited a good growth, with its total revenue improving from $136.8bn to $282.8bn (a CAGR of 15.6%), and its net profit going up from $30.7bn to $60.0bn (a CAGR of 14.3%.)

Similar to Amazon.com Inc., the management of Alphabet Inc. did not declare any dividend payouts to its shareholders throughout the entire 5 year period.

5. Tesla Inc. ($TSLA, 1.81% weightage)

Unless you’ve been living under the rock, you should know about the Electric Vehicle company Tesla Inc. (where there is an increasing number of Tesla cars on the road these days), along with its founder, Elon Musk (who currently is also the CEO of Twitter Inc. following his acquisition of the social networking company.)

Currently, Tesla is a market leader in the electric vehicle market, where it has 65.4% of the electric vehicle market – such dominance is translated to huge growth in its financial performance, where its total revenue soared at a CAGR of 30.5% over a 5 year period (between FY2018 and FY2022) from $21.5bn to $81.5bn, and its net profit overturned from a net loss of -$976m in FY2018 to a positive +$12.6bn in FY2022.

Finally, the company did not pay out any dividends over the last 5 years.

6. Berkshire Hathaway Inc. Class B ($BRK.B, 1.65% weightage)

Berkshire Hathaway Inc. is another “household name”, with the company helmed by the Oracle of Omaha, Warren Buffett.

It is a holding company owning subsidiaries engaged in numerous diverse business activities – including insurance (which is the company’s primary source of revenue, under 2 companies: GEICO – an auto insurance company, and Berkshire Hathaway Reinsurance Group), freight rail transportation, along with a group of utility and energy generation and distribution businesses. On top of that, it also owns and operates numerous other businesses engaged in a variety of manufacturing, services, retailing and other activities.

On top of that, the company also invests very heavily in the stock market, where they have acquired large stakes in well-known companies including Apple Inc., Bank of America Corporation, American Express Company, Chevron, and The Coca Cola Company.

Between FY2018 and FY2022 (a period of 5 years), its total revenue grew from $247.8bn to $302.1bn (a CAGR of 4.0%.) However, its net profit went up from $4.0bn in FY2018 to $89.8bn in FY2021 before sinking into a net loss of -$22.8bn in FY2022 due to market volatility and investment losses on derivatives contracts totalling more than $67bn.

Finally, the company does not pay out any dividends to its shareholders.

7. Johnson & Johnson ($JNJ, 1.35% weightage)

Take a walk down the aisles of the supermarket, you’ll find many products produced by the US-listed Johnson & Johnson – examples include skin health and beauty product brands Aveeno, Clean & Clear, Neutrogena, over-the-counter flu medicine Zyrtec, oral care product Listerine.

Apart from the above consumer health products, the company is also in the pharmaceutical business (where they focus on 6 therapeutic areas in immunology, infectious diseases, neuroscience, oncology, cardiovascular and metabolism, and pulmonary hypertension), along with medical devices (where they produce a range of products used in the interventional solutions, orthopaedics, surgery, and vision fields.)

Over the last 5 years (between FY2018 and FY2022), its total revenue had a stable growth from $81.6bn to $94.9bn (a CAGR of 3.1%.) However, its net profit growth have been irregular (where it saw growth on some years, and decline on the others) – despite of that, it still managed to improve from $15.3bn in FY2018 to $17.9bn in FY2022 (a CAGR of 3.2% – about the same rate as its revenue growth.)

However, the company’s dividends saw improvements every single year in the same time period – where it went up from $3.54/share in FY2018 to $4.45/share in FY2022 (a CAGR of 4.7%.)

8. UnitedHealth Group Inc. ($UNH, 1.34% weightage)

Among the companies I’ve shared so far, this one is probably most unfamiliar to Singaporeans – UnitedHealth Group Inc. is in the business of providing healthcare services under 2 segments: (i) UnitedHealthcare (a healthcare insurance business that offers a variety of health insurance plans to individuals, employers, and government), and (ii) Optum (through OptumHealth, which provides health care services through local medical groups and ambulatory care systems, including primary, specialty, urgent, and surgical care; through OptumInsight, which provides data, analytics, research, consulting, technology, and managed services solutions to hospitals, physicans, governments, and life science companies to help them reduce administrative costs, meet compliance mandates, improve clinical performance, and transform operations; as well as through OptumRx, which offers a full spectrum of pharmacy care services that make drugs more affordable and create a better experience for customers.)

Its financial performance saw stable growths over the last 5 years (between FY2018 and FY2022) – with its total revenue going up from $226.2bn to $324.2bn (a CAGR of 7.5%), and its net profit climbing from $12.0bn to $20.1bn (a CAGR of 10.9%.)

Finally, its dividend payouts have also been hiked from $3.60/share in FY2018 to $6.40/share in FY2022 (a CAGR of 12.2%, which is very healthy), with payouts on a quarterly basis.

9. Meta Platforms Inc. Class A ($META, 1.34% weightage)

Last but not least, we have Meta Platforms Inc., another tech company that owns social networking sites Facebook, Instagram, along with messaging platforms Messenger and WhatsApp. On top of that, it also retails virtual reality products under the brand Oculus. A huge bulk of the tech company’s revenue is derived from advertising on its social networking platforms.

As far as its financial performances over the last 5 years (between FY2018 and FY2022) is concerned, its total revenue grew from $55.8bn to $116.6bn (a CAGR of 15.9%), and its net profit went up from $22.1bn to $23.2bn (a CAGR of 1.0% – the low CAGR growth can be attributed to a 41.1% year-on-year decline in net profit in FY2022 due to lower income from its operations.)

Finally, the company did not declare any dividends to its shareholders over the last 5 years.

Closing Thoughts:

So there you have it – the essentials you need to know about the S&P 500 Index.

To recap, one of the biggest advantages of investing in the Index is the instant diversification to 500 of the biggest US-listed companies that are in a variety of industries. Another thing to note is, while there are years where the Index recorded declines, but over a 95-year period, the percentage is very low (at just 20+%). Also, if you look at its chart movements over the years, it has been on a steady upward moving trend – that said, the longer you stay invested in the index ETF, the more capital gains you’ll be able to enjoy.

That said, I have come to the end of my sharing of the US index. As always, do note that the contents above does not imply any buy or sell calls for the index. They are meant for educational purposes only. You should always do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am a shareholder of Alphabet Inc., Amazon.com Inc., and Meta Platforms Inc.

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