S&P 500 Index Funds: What You Are Actually Buying
Five hundred companies, but not five hundred equal bets.
At a glance
Figures checked 1 Sep 2026
What to take away
- Weighting is by market capitalisation, so the largest companies carry the most influence.
- A committee selects constituents against published criteria — it is not purely mechanical.
- Concentration in the top holdings has risen substantially over the past decade.
The S&P 500 tracks large US companies selected by a committee against liquidity, profitability and domicile criteria. Because it weights by market value, the biggest companies dominate. When a handful of very large firms move together, the index moves with them.
Concentration risk, plainly
When the top ten holdings account for a third or more of the index, the diversification you get from owning 500 names is less than the number suggests. That is not an argument against the fund; it is an argument for adding international and, if you want it, smaller-company exposure.
Fee differences are small but real
Between the cheapest and most expensive mainstream S&P 500 funds the gap is a few hundredths of a percent. Over decades it is worth choosing the cheaper one, but it should not dominate the decision about which account to hold it in.
Common questions
It is the oldest and most liquid, which matters for traders. For a long-term investor the cheaper alternatives tracking the same index are usually the better pick.