The S&P 500 is a stock market index that groups 500 of the largest companies listed on US exchanges. It is the most widely cited gauge of the US stock market, and knowing how it works helps explain why it comes up so often in financial news.
In this post you will see what the S&P 500 is, how it is built, which companies make it up, how it differs from other indexes such as the NASDAQ or the Dow Jones Industrial Average, and how you can invest in it in Mexico from the Bitso app.
What is the S&P 500?
The S&P 500 (Standard & Poor’s 500) is a stock market index that measures the performance of 500 large-cap companies listed mainly on the New York Stock Exchange (NYSE) and the NASDAQ. It is maintained by S&P Dow Jones Indices, and its members are selected by a committee, not simply ranked by size.
The name comes from Standard & Poor’s, the company that created it. Standard & Poor’s was formed in 1941 from the merger of Standard Statistics Company, which had been publishing an index of 233 stocks since 1923, and Poor’s Publishing. The 500-company version we know today was launched on March 4, 1957, and over time it became the most widely used reference for the overall behavior of the US stock market.
What is a stock market index and why does the S&P 500 matter?
A stock market index is a statistical measure that tracks the performance of a group of stocks representative of a market, a sector or a set of companies. It is not a financial instrument you can buy directly: it is a reference used to measure how that group of stocks moves as a whole.
The S&P 500 matters because it serves as a benchmark for almost everything else in the US stock market. Actively managed funds are usually measured against its performance, and a large number of index funds and ETFs exist precisely to replicate it. When someone says “the market went up” in the United States, they almost always mean the behavior of the S&P 500.
How does the S&P 500 work? How the index is built
Market capitalization and free float
Market capitalization, or market cap, is the total value of a company on the stock market: the price of each share multiplied by the number of shares outstanding. The S&P 500 does not weight its members equally, but by their market capitalization adjusted for free float.
Free float is the portion of a company’s shares that is available to trade freely on the market, excluding those held by founders, executives or governments that do not put them up for sale. Adjusting for free float prevents a company with many locked-up shares from having an artificially high weight in the index.
How each company is weighted within the index
The larger a company’s free-float-adjusted market capitalization, the greater its weight within the S&P 500. This means the performance of the largest companies has a disproportionate influence on the index’s overall result, compared with smaller companies that are also part of it.
Besides size, S&P Dow Jones Indices reviews criteria such as trading volume and the company’s profitability before including it. Low trading volume can make an instrument harder to trade, something the committee takes into account when deciding which companies enter or leave the index.
The sectors that make up the index
The S&P 500 is not just technology, even though that sector often dominates the headlines. It is organized into 11 sectors under the GICS standard, and each one groups companies with similar business models.
| Sector | Examples of companies in it |
|---|---|
| Information technology | Apple, Microsoft, NVIDIA |
| Consumer discretionary | Amazon, Tesla |
| Communication services | Alphabet |
| Consumer staples | Coca-Cola |
| Health care | Johnson & Johnson |
| Financials | Visa, JPMorgan, Berkshire Hathaway |
| Industrials | (varies with index reviews) |
| Energy | (varies with index reviews) |
| Materials | (varies with index reviews) |
| Real estate | (varies with index reviews) |
| Utilities | (varies with index reviews) |
Which companies are part of the S&P 500?
The S&P 500 includes companies of very different sizes and sectors, although those with the largest market capitalization tend to account for most of the index’s weight. Here is a sample of well-known companies that are part of it, along with their sector under the GICS classification:
| Company | Ticker | Sector |
|---|---|---|
| Apple | AAPL | Information technology |
| Microsoft | MSFT | Information technology |
| NVIDIA | NVDA | Information technology |
| Amazon | AMZN | Consumer discretionary |
| Tesla | TSLA | Consumer discretionary |
| Alphabet | GOOGL | Communication services |
| Coca-Cola | KO | Consumer staples |
| Johnson & Johnson | JNJ | Health care |
| Visa | V | Financials |
| JPMorgan | JPM | Financials |
| Berkshire Hathaway | BRK.B | Financials |
S&P 500 vs. NASDAQ vs. Dow Jones: what is the difference?
These three names are often used as synonyms for “the US stock market,” but they measure different things.
| Index | What it measures | Weighting method | Exchange(s) of origin |
|---|---|---|---|
| S&P 500 | 500 large-cap companies from different sectors | By market capitalization adjusted for free float | NYSE and NASDAQ |
| NASDAQ (Composite and NASDAQ 100) | The NASDAQ Composite includes thousands of companies listed on that exchange; the NASDAQ 100 is limited to the 100 largest, excluding the financial sector | By market capitalization | NASDAQ |
| Dow Jones Industrial Average | Only 30 large, established companies from different sectors | By share price, not by market capitalization | Mainly NYSE |
The Dow Jones is the oldest of the three and also the most limited, because it includes only 30 companies and weights them by price, not by the real size of the business. The NASDAQ 100 has a more pronounced tech concentration than the S&P 500, since it excludes the financial sector. The S&P 500 is generally considered the most representative of the stock market as a whole, precisely because it combines more companies and more sectors.
How to invest in the S&P 500 from Mexico?
You cannot buy “the S&P 500” directly, because it is an index, not a tradable financial instrument. What you can do is invest in financial instruments designed to replicate its behavior.
Index funds and ETFs that track the S&P 500
An index fund seeks to replicate the performance of an index such as the S&P 500, instead of trying to beat it through active stock selection. It can be structured in two ways: as an ETF (an exchange-traded fund that is bought and sold on the market just like a stock, with its price moving throughout market hours) or as one of the traditional mutual funds, also called investment funds, which are bought and sold at a price set once a day, at market close.
Two of the best-known ETFs that track the S&P 500 are SPY (SPDR S&P 500 ETF Trust) and VOO (Vanguard S&P 500 ETF), both listed in the United States. They are mentioned here as an example of how this type of instrument works, not as a purchase recommendation.
It is worth distinguishing this from CFDs (contracts for difference): a CFD replicates the price movement of an asset without the person trading owning that asset. Through Nvierto by Bitso*, you buy real ETFs or fractions of them, not a derivative.
Fractional shares: investing without large amounts
You do not need the full price of an ETF to get started. With fractional shares, you can invest in instruments like those that track the S&P 500 with the amount you have available, and take part proportionally in their performance.
What taxes do I pay when investing in the S&P 500 from Mexico?
The tax treatment depends on the issuer of the instrument, the type of distribution received (for example, whether the ETF pays dividends), your tax residence and the documentation you have provided. There is no single withholding that settles the entire tax obligation of an individual in the same way in all cases.
Check your account statements and seek tax advice for your particular situation before making decisions based on the effect of taxes on your investment.
Why invest in the S&P 500?
There is no single answer: as with any equity investment, the value of these instruments can go up or down, and nothing guarantees a result. It is worth weighing both the advantages and the risks and defining a solid investment strategy before making a decision.
| Advantages | Risks to consider |
|---|---|
| Diversification: investing in an ETF that tracks the S&P 500 gives you exposure to 500 companies from different sectors in a single instrument, instead of depending on the performance of a single stock. | Volatility: although the S&P 500 groups many companies, it is still equity. Its value can fall significantly in periods of market stress. |
| Liquidity: ETFs that track the S&P 500, such as SPY or VOO, are among the most traded instruments in the world, which makes it easier to buy and sell without major price friction. | Sector concentration: the weight of certain sectors, such as information technology, can be disproportionately high at different times, which reduces part of the apparent diversification. |
| Less need for individual analysis: instead of choosing stocks one by one, you get diversified exposure through a single financial instrument. | Currency exposure: for those investing in pesos, the exchange rate between the peso and the dollar adds an extra layer of fluctuation to the final result. |
How to start investing in the S&P 500 through Bitso
You do not need to open an account with a broker abroad to access instruments that replicate the S&P 500 from Mexico. You can do it through Nvierto by Bitso*, which transmits your instructions to Alpaca Securities LLC, the US broker-dealer that executes and holds the transactions in custody.
- Open your account: through a digital process from the Bitso app.
- Deposit: through SPEI.
- Search for the ETF that tracks the S&P 500 available in the app’s catalog and check its price before deciding.
- Choose the amount and confirm your instruction: Nvierto by Bitso* receives and transmits your instruction to Alpaca Securities LLC, which executes the transaction and holds the instrument in custody in your name.
Common mistakes when investing in the S&P 500
| Mistake | What it implies | How to avoid it |
|---|---|---|
| Thinking the S&P 500 can be bought directly | The S&P 500 is an index, not a financial instrument that can be traded by itself. | Invest through an ETF or index fund designed to replicate it, and do not look to “buy the index” as such. |
| Ignoring the effect of inflation over the long term | Leaving capital uninvested out of fear of volatility also has a cost: inflation reduces the purchasing power of idle money. | Weigh the risk of not investing together with the risk of investing, not only the latter. |
| Confusing diversification with the absence of risk | A diversified ETF is still equity: its value can fall along with the market in general. | Understand that diversification reduces concentration risk, not market risk. |
| Not considering taxes or currency conversion | Investing in dollar-denominated instruments from Mexico implies tax and currency effects that can affect the final result. | Check your account statements and seek tax advice before assuming a specific net result. |
Discover what your money is capable of from the Bitso app.
Frequently asked questions about the S&P 500
The S&P 500 is a stock market index that measures the performance of 500 large-cap companies listed mainly on the New York Stock Exchange and the NASDAQ. It is maintained by S&P Dow Jones Indices and is used as a reference for the overall behavior of the US stock market.
The index includes 500 companies, although the actual number of listed shares may be slightly higher, because some companies trade with more than one share class.
It is calculated by weighting each company according to its market capitalization adjusted for free float, that is, the value of the shares that are actually available to trade on the market. Companies with a larger market capitalization have more weight in the index's result.
No. The S&P 500 is an index, not a financial instrument that can be bought as such. To get exposure to its performance, ETFs or index funds designed to replicate it are used, such as SPY or VOO.
The S&P 500 includes 500 companies from different sectors weighted by market capitalization. The NASDAQ 100 is limited to the 100 largest companies listed on that exchange, excluding the financial sector. The Dow Jones Industrial Average includes only 30 companies and weights them by share price, not by the size of the business.
SPY (SPDR S&P 500 ETF Trust) and VOO (Vanguard S&P 500 ETF) are two of the best-known ETFs designed to replicate the performance of the S&P 500. Both trade on the market like a stock and let investors get exposure to the index without buying the 500 companies separately.
The index itself does not pay dividends, but many of the companies that make it up do. ETFs that replicate the S&P 500 usually distribute those dividends to their holders, according to each fund's policy.
With the fractional shares available through the Bitso app (through Nvierto by Bitso*), you do not need the full price of an ETF to get started. You can invest in instruments that track the S&P 500 from just $20 pesos.
Legal notices
* The Nvierto by Bitso brand identifies the services provided by Nvierto, S.A. de C.V., Independent Investment Advisor, registered in the Investment Advisors Registry of the National Banking and Securities Commission (CNBV) under folio 30205.
The Bitso app serves only as the digital medium through which users can learn about, contract and access the services provided by Nvierto, S.A. de C.V., Independent Investment Advisor. Bitso does not provide the investment advisory or transaction execution services described in this article.
The execution of transactions and the custody of foreign securities are carried out by Alpaca Securities LLC, a broker-dealer registered with the US Securities and Exchange Commission and a member of FINRA and SIPC. Alpaca Securities LLC executes and holds the securities in custody according to the instructions transmitted by Nvierto, S.A. de C.V., Independent Investment Advisor.
The information provided is for informational purposes only and does not constitute financial or legal advice. It is not a personalized recommendation to buy or sell securities. All investing involves risk, including the possible partial or total loss of capital. Past performance does not guarantee future results. Keep in mind that the stock, ETF and equity markets can be highly volatile and that an increase in the market value of your assets is not guaranteed. Seek professional advice and do your own research before making investment decisions.
The images and logos shown are used for illustrative purposes only, and do not constitute a personalized recommendation, nor an offer or promotion to buy or sell specific securities.
