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Category: Investing

The Anatomy of the Index

Did you know that nearly $10 trillion in assets are benchmarked to the Standard & Poor’s 500 Composite Index, including about $3.5 trillion in index assets?[i]

 

The S&P 500 is ubiquitous. It is constantly referenced in financial and non-financial media, and we may compare the return of our own investments to its performance. As the index represents approximately 80% of the value of the U.S. equity market (or in financialese, about 80% of market capitalization), it may be worthwhile to gain a better understanding of its structure and workings.1

 

Breaking down the benchmark. The S&P 500, as we know it today, was introduced in March 1957. It tracks the market value of about 500 large firms that are listed on the Nasdaq Composite and the New York Stock Exchange. The S&P is structured to include companies from across the sectors of the business community, in an effort to represent the breadth of the U.S. economy.1,[ii]

There are a number of criteria a company must meet to be considered for inclusion in the index. A firm must be a U.S. company publicly listed on a major equity market exchange, have a market capitalization of $6.1 billion or more, and have at least 250,000 of its shares traded in each of the six months prior to its consideration for index membership by Standard & Poor’s. A company must also be financially viable: the ratio of its annual dollar value traded to its float-adjusted market cap must be greater than 1.0.[iii]

 

The S&P has changed over time. Companies have been gradually removed and added over the past 60-odd years. At the benchmark’s fiftieth anniversary in 2007, just 86 of the original components remained. Subsequent mergers and acquisitions have reduced that number further.3

Right now, about 20% of the weight of the S&P is held in ten companies, and the performance of tech shares influences the benchmark’s return, perhaps more than any other factor.3

The index has been altered through the years in response to changes in the economy. Across several decades, the makeup of the index’s various sectors has differed, along with their weightings. This leads to frequent updates for the equity funds that aim to replicate the index; in order to maintain that replication, they may quickly need to buy or sell shares of corporations that are being added or removed.3

It should be noted that investors cannot invest directly in an index. Also, index performance is not indicative of the past performance of a particular investment, and past performance does not guarantee future results. Investment choices designed to replicate any index may not perfectly track it, and their returns will be reduced by fees and expenses.

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

 

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] https://us.spindices.com/indices/equity/sp-500

[ii] https://www.investopedia.com/ask/answers/041015/what-history-sp-500.asp

[iii] https://www.fool.com/investing/2018/07/10/7-fascinating-facts-about-the-broad-based-sp-500.aspx

Monitor Household Finances with Monthly Meetings

Monitor Your Household Finances with Monthly Meetings

Communication is the process through which we transfer information to each other. Although modern forms of communication have increased (emails, texts, letters, social media), connecting with each other is still at the foundation of our humanity. We just have to talk.

Family communication, in particular, molds us together in profound and lasting ways. Without it, the family would inevitably disintegrate.

Communications simple secrets

Effective family communication requires every member to pay attention to what others are saying, how they’re saying it, and to identify the feelings behind words and gestures.[i] Genuine listening is the most overlooked aspect of good communication. It’s the part that makes communication two-way.

Talking about money

Every household has a budget of sorts. It may be a rigid, tightly structured, highly detailed plan or a more carefree, open-ended, and vague financial construct that gets little oversight or review. Or, more likely, it’s something somewhere in between. While budgets or financial strategies are often assembled based on personalities and preferences, they do require mutual input from family members.

An appropriate division of labor that designates who manages the budget or who pays the bills is important. But an arrangement where one partner or family member oversees the finances while the others are kept in the dark is unproductive and unhealthy.

Communication (and consensus) is necessary to bring vitality and direction to families and finances.

While simply discussing family finances is good, budget meetings become even more effective when they’re done with regularity. Holding monthly (or more frequent) meetings will help coalesce your visions and shape the goals of your family.

Here are nine steps for a successful family financial meeting:[ii]

  1. Schedule it. Put the meeting on your calendar. It should not be spontaneous. Hold it at a mutually convenient and appropriate time.
  2. Set the timer. You’re not running a marathon or a congressional hearing. Make it short—30 minutes or so—and sweet.
  3. Eliminate distractions. Turn off the TV. Put your phone away. Make sure the chores are done. Make your meeting an investment of time.
  4. Include some delicious distractions. We’re talking snacks, which make meetings more enticing.
  5. Go prepared. Bring pens, papers, or whatever other tools you’ll need to develop and monitor your family budget and finances. You can use online budgeting tools or apps.
  6. Order in the court. Or the budget meeting. Follow a progressive meeting plan, such as listing income first. Then proceed by dividing and segmenting money into individual categories: donations, utilities, debt, fun stuff.
  7. Allow for objections. You’re trying to create a team plan to financial management. You may have other priorities and preferences than other participants in the meetings. Discuss them and reach an agreement. Find ways to compromise.
  8. Watch the clock. If you’re having trouble or facing challenges, consider addressing contentious matters at another meeting. Stick to your allotted time.
  9. Rules of engagement. Budgets are wonderful tools to reach your goal, but without a way to track spending, it’s just a piece of paper or online platform. Put your budget to work for you by making sure you plug in income and spending numbers regularly and consistently.

If you would like to discuss your current financial plans or budgeting strategies, please contact us at (800) 929-1001 or visit our website.

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] https://pubs.ext.vt.edu/350/350-092/350-092.html

[ii] https://www.daveramsey.com/blog/how-to-have-a-family-budget-meeting

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