Ask Matt: Is the S&P 500 index misleading?

— -- Q: Isn't the Standard & Poor's 500 misleading since S&P is constantly adding hot stocks and removing dogs?

A: Haters of the stock market and detractors of the idea of index investing constantly trot out this argument.

They constantly disparage stock market indexes, such as the ubiquitous Standard & Poor's 500, calling them misleading because they do change over time. These people claim the S&P 500 is not an accurate representation of the market because a committee at S&P adds and deletes companies over time. The popular argument is that the S&P 500 shows the market doing better than it really did, because dogs and poor performing stocks are frequently replaced with companies with better performing stocks.

It is true that the S&P 500 of today is different than the S&P 500 of five or 10 years ago.

But to say these changes somehow skew the accuracy of the index are faulty. First of all, the S&P 500 is weighted. The stocks with the greatest value of publicly available shares have much greater influence on the value of the index. The top 50 stocks in the S&P 500 have a huge weighting and dwarf the changes of smaller companies. The top companies in the S&P 500 have been relatively stable. Most of the changes remove stocks with relatively small floats, which would have a relatively small influence on the index anyway.

Second, while it's true the S&P 500 of today is very different from five years ago, it's supposed to be that way. The stock market reflects the nature of the economy and the economy has changed dramatically in the past five years. Indexes like the S&P 500 are designed to mirror the stock market, which also, is constantly changing. Economic changes have forced entire companies into bankruptcy and wiped out industries. Changes must be made to market indexes so the benchmarks accurately reflect the value of the stock market and, in turn, the economy.

Stock market haters will always find a reason to disparage the stock market. But for logical investors, who understand the dynamic nature of the economy and role of stock market indexes, a changing index is a more accurate one.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz