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What Makes the People Fussing Around the 500 Index Fund?

A five hundred index fund simply means five hundred different portfolios of stocks comprised in an index. The 500 index fund is composed of about 70% of the large cap companies in the United States of America. Companies that are accepted in the list are US based, when a company moves out of the US territory it is then replaced by another company. But in some cases there are a number of non-US based businesses that has been in the list only to have a representation of that particular company in the country. Most 500 index funds cater large cap companies. To make clear the misconception of most people regarding the composition of a 500 index fund, the list consists not only of top performing companies but also based on their performance in the specific industry they represent, liquidity, and market size. Truly that index funds had created a fashion in the finance industry that garnered massive support from the people all over the world.

Economists, books, magazines, and internet websites would tell that it will be more precise to say that a 500 Index is composed of leading companies in a leading sector. Some of the various sectors include basic materials, consumer goods, conglomerates, financial, technology, utilities, industrial goods, services, and healthcare. Each of these industries shares a portion of the index fund. But before you invest in a particular index fund you should first know how its stocks are weighted. For a 500 Index fund, movement of stocks are market-value weighted meaning stocks that have higher market capitalization pose greater impact in the market than those with less or lower market capitalization. In any form of business, maintenance next to achieving stability is very much needed to keep it going. 500 Index funds also do some measures to maintain its performance. Most common of this is stock splitting, it is a corporate action wherein the stocks are divided into the shareholders but still having the same market capitalization that before and after the split. Issuing dividends among its shareholders is also a corporate action that a stock index does.

The S&P 500 Index has long been practicing these methods and has been the benchmark of some indexes in monitoring the stock movements of the top companies and industries. Since its inception in 1923 it has created a trend that has made way for other indexes to replicate whatever step they do or execute. Even investors do watch closely of their actions. For example if the S&P500 purchases a stock from a particular company then investors would probably be joining in the bandwagon and do what it did believing that this particular index represents the real status of American stock market. Investing in a large community of indexes would really eat up all of your time if you are serious of being into it. It needs patience, as gains may take a long period before you see it, skills because you would have to analyze things over and over before making a decision.

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