A business administration graduate from Troy University, Kathy Nishnic is dedicated to assisting Americans with their retirement and income options, Kathy Nishnic reviews client accounts for income optimization through channels like investing in the stock market. She recently shared an article explaining the anatomy of an index, specifically the Standard & Poor’s 500 Composite Index.

The S&P 500 was created in 1957. It is monitored by the Standard & Poor’s Index Committee and comprises a grouping of large-cap stocks from various industries including technology, health care, energy, and consumer staples. It constitutes a whopping g 80 percent of the value of the US equity market with $9.9 trillion in assets benchmarked to it.

The constituent companies of the index are not static. New companies are added periodically while others are removed. To join the index, a company must be based in the United States, have a market cap of over $5.3 billion, be financially viable, and be a market leader. Companies that do not meet these criteria are removed. For example, a company that goes into bankruptcy is not financially viable, hence is removed from the index.

Turnover for the S&P 500 companies stood at 5.2 percent in 2017. Whenever changes to the index are made, mutual funds tracking it has to sell the stocks that were removed and purchase those that are added. Noteworthy, amounts in mutual funds fluctuate in value. Hence redeemed shares may have higher or lower values than their original cost.

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