← Stocks · lesson 9 of 12
By the end of this one you'll know what an index is, what the S&P 500 actually contains, and what people really mean when they say the market went up.
An index is just a list somebody keeps score with, and the S&P 500 is the most famous one: a list of about 500 of the biggest companies in America, kept by a company called Standard and Poor's. Think of a class's average grade. The teacher doesn't read you 500 report cards, she says the class averaged a B this term, one number for the whole room. When the evening news says the market rose today, they usually mean this list's combined score ticked up, the class average, not every single student. Now, you can't buy a list, same as you can't buy the honor roll off the school wall. But an index fund is a basket of stocks built to copy the list, holding a little piece of every company on it, so the basket's value moves with the class average. List, average, copy, that's the whole secret.
Same lesson, told by a hundred dollar bill. Tap to walk it one step at a time.
In this example an index fund share costs $50 and its small yearly fee, called an expense ratio, is 0.
03%.
$100 buys 2 shares, which is a tiny sliver of all 500ish companies on the list, and the fee runs about 3 cents a year on that $100.
If the list's combined score falls 10% over a year the $100 shows about $90, and if it climbs 10%, about $110.
You're stirring dinner with the news on when the anchor says the S&P 500 dropped 1 percent today. Your teenager looks up from homework and asks what an S and P even is, and you realize you've heard that phrase your whole life without knowing. The spoon keeps moving while you decide what to say.
Pick your move. Then peek at the other roads if you're curious.
The S&P 500 is a scorekeeping list, and when the news says the market moved, it usually means that list's average did.