For Singapore based investors investing in the US stock market, S&P 500 is one stock market index that we cannot ignore. It provides a deep insight into the largest equity market in the world.
Once you have decided to pursue the equity market in the four steps to the successful investing process, selecting which equity market to invest in will be the next decision. Singapore and US stock markets are two popular options among Singapore based investors. The index is paramount to those selecting the US stock market.
What is S&P 500?
S&P 500 is one of the three US stock market indices. The other two are Dow 30 and Nasdaq 100. S&P 500 measures the performance of the 500 largest companies listed in the US stock exchanges.
Why is the S&P 500 important?
S&P 500 is one of the keys indices in the world. However, what makes it to be that crucial? Let’s look at four of them.
1. S&P 500 provides a quick summary of the general health of the economy.
The value of the index consists of the 500 largest companies in the US. Various factors can affect the price of an individual stock. However, we can broadly classify them into the economic situation and financial performance of the company itself. Therefore, it provides an overview of the state of the economy of the United States.
2. The index gives insight into the reasons why individual raises or declines.
When the stock market moves vigorously in one direction, it is rare for an individual stock to buck the trend. Therefore, an investor should not just look at the price movement of single equity in isolation. It is of utmost importance to compare the increase or decrease against the general market trend. For example, we will consider a decline of 3% to be of good performance should the index plunges by 5% on the same day.
3. It serves as a direct reference to index fund investor.
For investors who prefer a passive investment approach, the index serves as an underlying index for the fund. Many index funds track the performance of the S&P 500. Some of the popular ones include SPY, IVV and VOO.
4. The index provides a benchmark against the performance of fund managers.
The job of a fund manager is to invest and generate a return for the investors. To measure how well a fund manager has performed, we compare his return on investment against a benchmark. For funds that focus on the United States, S&P 500 is a popular benchmark.
Conclusion
We have learnt that S&P 500 is a significant index that investors will need to know. It is also the index that I have been following closely in the past 15 years or so. Whether you decide to invest in the S&P 500 index or individual stocks, you may refer to this article to start investing in the US stock markets. May this article turns unprofitable investors profitable and successful investors earn even higher return!
