Here’s a primer on how S&P 500 funds work, and whether they might work for you

For those would-be investors wanting to jump into the stock market but wondering which stock to buy, legendary investor Warren Buffett has a suggestion: Try buying 500 stocks instead.

“In my view, for most people, the best thing to do is own the S&P 500 index fund,” Buffett said at Berkshire Hathaway’s annual meeting in May. But what is the S&P 500, and how do you invest in one of its funds?

Here’s an intro to how S&P 500 funds work, and whether one might be a good fit for your portfolio.

What Is the S&P 500?

The S&P 500, or S&P, is a stock market index comprising shares of 500 large, industry-leading U.S. companies. It is widely followed and often considered a proxy for the overall health of the U.S. stock market.

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Standard & Poor’s, an American investment information service, created the index in 1957. Every quarter, its investment committee meets to review which stocks belong in the index based on each company’s market size, liquidity and group representation. Today, 505 stocks constitute the index, since some of the 500 companies have more than one class of shares.

 

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