The Vanguard S&P 500 is one of the most popular investments on the US share markets, but what is it? Learn about the S&P 500, and how you can invest in the different exchange traded funds that track this famous index.

What is the Vanguard S&P 500?

The Vanguard S&P 500 (VOO) is an ETF (exchange traded fund) made up of 500 of the largest companies publicly trading in the USA. Vanguard is just one of the investment management companies that provides access to the S&P 500 Index via an ETF. Vanguard was founded by renowned investor John ‘Jack’ Bogle in 1975, who famously created index investing for retail investors. While the Vanguard S&P 500 is one of the better known ETFs available to investors, it’s just one of a wider group of ETFs that all track the same index, the S&P 500.

What is the S&P 500?

The S&P 500 Index is a group of 500 publicly traded companies, or pakihi, on the US share markets. The main criteria for being part of this group of companies is the market cap (total dollar market value) of the company. 500 companies may sound like a lot, but for context there are about 2,600 companies listed on the New York Stock Exchange (NYSE), around 3,750 on the Nasdaq, and more than 3,700 on the OTC markets. 

A short history of the S&P 500

Years before John Bogle came along, the first iteration of the S&P Index was born in 1923. It was a joint venture by Standard Statistical Bureau, and Poor's Publishing and included 233 companies. The S&P 500 index as we know it today was created in 1957 by the now merged companies, Standard and Poor’s, and includes 500 companies.

S&P 500 companies

The S&P 500 is primarily a market cap weighted index, meaning that the companies that make up the index are, on the whole, some of the largest on the US share markets. To make it on to this index a company must be publicly traded in the United States, meaning you won’t find any American Depositary Receipts (ADRs) on this list. Companies also need to meet requirements for market cap, liquidity and have positive earnings for four consecutive quarters, including the most recent quarter.

The companies included in the S&P 500 index can be categorised into a number of different sectors:

How many companies are in the S&P 500? 

Is this a trick question? Funnily enough, at the time of writing there are currently 503 securities listed in the S&P 500 because it includes three dual-class companies:

• Alphabet Class A (GOOGL), Class B (GOOG)
• Fox Corporation Class A (FOXA), Class B (FOX)
• News Corp Class A (NWSA), Class B (NWS)

When does the S&P 500 change, and why?

The S&P 500 is rebalanced every quarter, in March, June, September, and December. This means that the companies on the list are reviewed four times a year to see if they still meet the criteria, and the weighting of each company is adjusted to reflect their current market cap, or value.

Around 400 companies that were previously part of the index are no longer part of the S&P 500. Of the many reasons for these changes, some include;

• A company being acquired by another company 

Example: Microsoft (MSFT) purchased Activision Blizzard in 2023

• Market capitalisation change

Example: Whirlpool (WHR) market cap fell to US $5.85 B, the threshold for inclusion in the S&P 500 is US$6 B.

• Bankruptcy or delisting

Example: The FDIC placed SVB Financial Group's main subsidiary, Silicon Valley Bank, into receivership

• Company is taken private

Example: Elon Musk acquired Twitter in 2022 and it became private

• Changes in S&P 500 criteria

Example: Threshold for market capitalisation is raised

Despite all the changes, some of the companies included in the original S&P 500 Index in 1957 are still in it. This includes Deere & Co (DE), Pfizer (PFE), Campbell’s Soup (CPB), Coca-Cola (KA), Ford Motor Co (F) and Goodyear Tire (GT).

The famous S&P 500 average return

For almost 100 years, the S&P 500 average historical return has been around 10%. Keep in mind this is not adjusted for inflation, and is the average return, and you can’t expect to get a round 10% every year. In 2008, the year of the Global Financial Crisis, the Index dropped an eye-watering 38.49%. Over the following five years it averaged a 15.85% return.

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Read more: How compounding growth and compound interest works

How to invest in the S&P 500

You can invest in exchange traded funds (ETFs) that track the S&P 500 Index through investment platforms that offer access to the US share markets. For some investors, buying shares in an ETF that contains so many companies means that they end up investing in companies or industries that don’t align with their values.

If you’d rather back a particular company or industry, investment platforms like Hatch give you access to individual companies within the S&P 500 Index, as well as more focused ETFs. Do your own research before you decide to invest in ETFs or stocks, and decide which investment could be right for your financial goals.

Read more: ETF vs stocks: What’s the difference?

Different S&P 500 ETFs

There are many different ETFs that track the S&P 500 Index, but they are not all the same. Differences between them include the fund manager, the expense ratio, assets under management (AUM) and net asset value. At the time of writing, these were some of the largest S&P 500 ETFs by net assets:

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Many other exchange traded funds use the S&P 500 as a starting point, but add their own tactics to the structure of the ETF such as;

• SPDR Portfolio S&P 500 Growth ETF (SPYG) Focuses only on growth stocks within the S&P 500 
• Invesco S&P 500 Equal Weight ETF (RSP) Gives equal weighting to companies rather than weighting by market cap
• Vanguard S&P 500 Value Index Fund ETF (VOOV) Focuses on value stocks within the S&P 500

There are many different options available to investors looking to invest in funds that track the S&P 500 Index. The Vanguard S&P 500 ETF is one of the largest in terms of assets under management, but there are a diverse range of options from many different fund managers to suit investors' individual goals. When you’re deciding what to invest in, keep in mind that all S&P 500 ETFs are different, and use your research skills to determine if any are right for you.