What is the S& P 500? Why do we compete against it?
Why do we compete against it?
Best Answer
4085 points
EthanR answered one year ago …
The S&P 500 is an index of 500 stocks of some of the largest companies in the United States. According to investopedia, the S&P 500 is:
"An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.
Companies included in the index are selected by the S&P Index Committee, a team of analysts and economists at Standard & Poor's. The S&P 500 is a market value weighted index - each stock's weight in the index is proportionate to its market value.
The S&P 500 is one of the most commonly used benchmarks for the overall U.S. stock market. The Dow Jones Industrial Average (DJIA) was at one time the most renowned index for U.S. stocks, but because the DJIA contains only 30 companies, most people agree that the S&P 500 is a better representation of the U.S. market. In fact, many consider it to be the definition of the market."
Because it is such a vast representative body of the overall stock market, it becomes the best gauge to measure performance against.
Answers
356 points
Dusty answered one year ago …
To add to the excellent answer by EthanR, 'we' as small investors along with everyone else consider that the S&P 500 Index is the prime benchmark. No one is trying to compete 'against' it. The object is mostly to keep up with it and try to outperform it with our own portfolios.
Out in the open countryside there are two lane roads with stop signs, slow traffic, sudden right angle turns, small towns and lots of small town police and "County Mounties." The railroad tracks thread across all this; sometimes at grade level and sometimes with bridges over or under. The speed limit on the roads is 40 or 50, 25 in town. The game is to try to average better than the railroad train that is running parallel to the numbered "Highway" at its steady speed just like the S&P 500 companies as a group are running parallel to our individual efforts. Keeping up is tough; beating it is a thrill.
