Picture this: you’ve got some money saved, and you’re wondering where to put it. For decades, the S&P 500 has been the default answer — and with good reason. This index of 500 leading U.S. companies has delivered an average annual return around 10% since 1957 (Fidelity, a leading brokerage). By the end, you’ll know exactly what it is, how to invest, and what the numbers really mean.
Average annual return (since 1957): ~10% ·
Number of companies: 500 ·
Market capitalization: $40+ trillion ·
Inception date: March 4, 1957
Quick snapshot
- The S&P 500 has historically recovered from every major downturn (Fidelity, a leading brokerage)
- Long-term average annual return is approximately 10% including dividends (Fidelity, a leading brokerage)
- Index composition changes over time (Slickcharts, a market data site)
- Whether the S&P 500 will continue to outperform international markets
- If current valuation levels are sustainable in the near term
- 1957: S&P 500 launches
- 2024-2025: New all-time highs driven by tech and AI
- Market watchers are divided on near-term direction given elevated valuations
The S&P 500 isn’t a bet on a single company — it’s a bet on the American economy. For long-term investors, that bet has paid off with remarkable consistency. The challenge: staying in when headlines scream panic.
Here’s a snapshot of the key facts:
| Inception | March 4, 1957 |
|---|---|
| Number of companies | 500 |
| Average annual return | ~10% (since 1957, with dividends) |
| Total market cap | ~$40 trillion |
| Top sector weight | Technology (~30%) |
| Average 10-year return (2016-2025) | 14.8% |
| Average 20-year return (2006-2025) | 11% |
| Worst year since 1957 | 2008 (-38.49% price return) |
What does S&P 500 stand for?
What do the letters S&P stand for?
S&P stands for Standard & Poor’s, the financial services company that created the index. It started as a publication called “Poor’s Manual” in 1860, merging with Standard Statistics in 1941. The index itself launched in its current form on March 4, 1957 (Slickcharts, a market data provider).
How is the S&P 500 selected?
The index is market-capitalization-weighted, meaning bigger companies have a larger impact on its value. An S&P committee selects members based on liquidity, market cap (companies must be worth at least $18 billion), and sector representation. It’s not simply the 500 largest companies — it’s designed to represent the U.S. economy.
Five numbers, one pattern: the S&P 500 captures about 80% of total U.S. stock market value. Technology alone makes up roughly 30% of the index today.
The S&P 500 is one of the most well-known benchmarks for the stock market as a whole.
Fidelity (major U.S. brokerage)
The implication: understanding the index’s construction is essential for evaluating its role in a portfolio.
What if I invested $1,000 in the S&P 500 10 years ago?
How much would $1,000 be worth after 10 years?
Using the average 10-year return of 14.8% reported by Fidelity for the period ending December 2025, a $1,000 investment would have grown to approximately $4,035. That’s more than quadrupling your money — without picking a single stock (Fidelity, a leading brokerage).
Historical average return of the S&P 500
The long-run average of about 10% masks huge yearly swings. In 2022, the S&P 500 total return was -18.11%. In 2019, it was +31.49% (Slickcharts, a market data site). The average masks the volatility, but the compounding works over decades.
- 2020 total return: 18.40%
- 2021 total return: 28.71%
- 2022 total return: -18.11%
- 2023 total return: +26.19% (estimated from market recovery)
The catch: years like 2022 test your nerve. Investors who sold during the 2020 COVID crash missed the 18.40% rebound that same year (Slickcharts, market data provider).
Time in the market beats timing the market. A $10,000 investment in 2006 — right before the financial crisis — still grew to about $79,000 by 2025 at an 11% average annual return (Fidelity, brokerage data).
The pattern: even perfect timing can’t beat the cost of being out of the market.
Is the S&P 500 still a good investment?
Current market risks for S&P 500 investors
As of early 2025, the S&P 500 trades at roughly 22 times forward earnings — above its 10-year average of about 18. That’s a risk signal for value-conscious investors. The 2022 bear market (-25%) showed that even the index is vulnerable to rising interest rates and inflation (Fidelity, brokerage analysis).
Diversification and long-term growth
The index contains 500 companies across 11 sectors. That diversification means no single company failure can wipe out your investment. At the same time, technology weighting at ~30% means you’re betting heavily on that sector’s continued growth.
The pattern: every bear market since 1957 has been followed by a recovery to new highs. The 2020 COVID crash saw a -34% drop followed by a full recovery within 18 months.
When people refer to the average stock market return, they are often talking about the S&P 500’s average.
Fidelity (brokerage research)
What this means: discipline matters more than prediction when investing in this index.
What did Warren Buffett say about the S&P 500?
Warren Buffett’s recommendation for index funds
Warren Buffett has repeatedly advised most investors to buy low-cost S&P 500 index funds. In his 2013 letter to shareholders, he famously compared a bet with a hedge fund: over 10 years, an S&P 500 index fund beat a portfolio of elite hedge funds. Buffett’s instruction to the trustee of his wife’s inheritance was simple: put 90% in a low-cost S&P 500 index fund and 10% in short-term government bonds (Fidelity, brokerage analysis).
Why is Buffett selling S&P 500 holdings?
Berkshire Hathaway has been selling some S&P 500-related holdings, but that’s different from Buffett’s personal advice for average investors. He sells when he sees better opportunities — like buying back Berkshire stock. For the typical investor, Buffett’s message has been consistent for 20 years: buy the index and hold.
The catch: even the Oracle of Omaha acts differently with his own company’s cash.
How do I invest in the S&P 500?
Investing in S&P 500 index funds vs ETFs
You have two main options: index mutual funds (like Fidelity’s FXAIX or Vanguard’s VFIAX) or ETFs (like VOO or SPY). Both track the same index. Mutual funds allow fractional shares and automatic investments; ETFs trade like stocks throughout the day. Expense ratios run as low as 0.03% for VOO (Fidelity, brokerage data).
Setting up a brokerage account
- Choose a broker: Fidelity, Vanguard, Schwab, Robinhood, or any major platform
- Open an account (takes 10-15 minutes)
- Fund it via bank transfer
- Buy shares of an S&P 500 fund (ticker: VOO, SPY, IVV, or FXAIX)
Dollar-cost averaging strategy
Instead of investing a lump sum all at once, you invest a fixed amount every month. This means you buy more shares when prices are low and fewer when prices are high. Research from Fidelity and others shows dollar-cost averaging reduces the emotional pain of market timing.
For example: investing $500 monthly into VOO over 20 years, assuming a 10% average return, would grow to approximately $380,000 — even if the index fluctuates wildly along the way.
The implication: automation removes emotion and lets compounding do the work.
So when it comes to the S&P 500, what’s the track record when things go wrong?
Pros
- Diversification across 500 companies reduces single-stock risk
- Low-cost index funds offer expense ratios under 0.05%
- Long-term returns have beaten most active managers
- Dividends provide additional income (yield ~1.3-1.5%)
- Inflation-adjusted returns have historically been positive over 10+ years
Cons
- No diversification outside the U.S. — only American companies
- Heavy technology weighting (~30%) creates sector concentration risk
- Worst drawdowns can exceed 50% (2008-2009: -57%)
- Not suitable if you need the money in less than 5 years
- High valuations today may mean lower future returns
The trade-off: the index’s strengths come with real vulnerabilities that require a long time horizon to overcome.
Timeline: S&P 500 milestones
- 1957: S&P 500 launches with 425 industrial, 15 rail, and 60 utility stocks (Fidelity, brokerage data).
- 2008-2009: Global financial crisis – S&P 500 drops ~57% from peak to trough (Slickcharts, market data provider).
- 2020: COVID-19 pandemic crash – index falls ~34% then recovers within 18 months (Slickcharts).
- 2022: Bear market due to inflation and rate hikes – S&P 500 drops ~25% (Fidelity).
- 2024-2025: Index reaches new all-time highs, driven by tech and AI (MarketWatch (financial news)).
The pattern: every major drop — regardless of cause — has been followed by a recovery to new highs within 2 to 5 years. The trade-off: you have to stay invested through the drops.
Clarity: What we know and what we don’t
Confirmed facts
- The S&P 500 has historically recovered from all bear markets (Fidelity, brokerage data).
- Long-term average annual return is approximately 10% including dividends (Fidelity).
- Index composition changes over time (Slickcharts, market data provider).
What’s unclear
- Whether the S&P 500 will continue to outperform international markets.
- If current valuation levels are sustainable in the near term.
The pattern: history offers confidence, but the future always holds unknowns.
Expert perspectives
My advice to the trustee of my wife’s inheritance: 90% in a low-cost S&P 500 index fund, 10% in short-term government bonds.
Warren Buffett, Berkshire Hathaway CEO (2013 shareholder letter)
The S&P 500 is one of the most well-known benchmarks for the stock market as a whole.
Fidelity (brokerage research)
When people refer to the average stock market return, they are often talking about the S&P 500’s average.
Fidelity (brokerage analysis)
tradethatswing.com, ofdollarsanddata.com, morningstar.com, novelinvestor.com
Frequently asked questions
What is the difference between the S&P 500 and the Dow Jones Industrial Average?
The Dow tracks 30 major companies, is price-weighted (higher-price stocks have more influence), and covers a narrower slice of the market. The S&P 500 tracks 500 companies, is market-cap-weighted, and represents about 80% of U.S. stock market value.
Can I buy the S&P 500 directly?
No — you can’t buy an index directly. You buy shares of a mutual fund or ETF that tracks the index, like VOO (Vanguard) or SPY (State Street).
What is the minimum investment for an S&P 500 index fund?
Some brokers require $1 for mutual funds; ETFs like VOO can be bought for the price of one share (roughly $500 as of 2025). Fractional shares are available on many platforms now.
Does the S&P 500 pay dividends?
Yes — the companies in the index collectively pay dividends. The yield varies but historically averages around 1.3-1.5% annually.
How often is the S&P 500 rebalanced?
The index committee adjusts as needed when companies are added or removed. Rebalancing to sector weights happens quarterly, but composition changes happen more frequently.
What is the current P/E ratio of the S&P 500?
As of early 2025, the forward P/E ratio is approximately 22, above the 10-year average of 18. That suggests relatively high valuations.
How do I calculate my return on an S&P 500 investment?
Subtract your initial investment from the current value, divide by the initial amount, then multiply by 100. Include dividends received for total return. Use an S&P 500 calculator like the one at OfDollarsAndData.com for precise figures.
Are S&P 500 funds safe in a recession?
No investment is completely safe in a recession — the S&P 500 fell 57% in 2008-2009 and 34% in 2020. However, it has historically recovered from every recession, typically within 2-5 years.
What this means: patience and a long horizon are the real keys to benefiting from this index.
Related reading
- ASX Announcements Today: Schedule, Market Movers & Rules
- GMG Share Price – Live ASX Data and Analysis
For investors, the S&P 500 remains a core holding recommended by experts like Warren Buffett and Fidelity.
Andrew Ellis leads fact-checking, source verification and corrections at Oz Insightlab.