Contents
Stock Investing Basics
Types of Stock
Stock Indices
How to Determine Your Level of Risk Tolerance
How to Plan Your Stock Portfolio
How to Research Stocks
How to Buy and Sell Stocks
How to Manage Your Stock Portfolio
Stock Investing and Taxes
Learn more with these titles from Barnes & Noble
|
 |
 |
 |
|
Stock Indices
A stock index is a benchmark number that is based on the prices of a specific set of stocks. Each index is intended to reflect the overall performance of the stock market, or a portion of the market, over time. The stocks included within a particular index are based on a set of specific criteria, such as market cap, sector, and so on.
The Major Stock Indices: S&P 500 and Dow
The two major stock indices are the Standard & Poor’s 500, known as the S&P 500 or just S&P for short, and the Dow Jones Industrial Average, known as the Dow for short.
Index Name |
Description |
|
S&P 500 |
Index of 500 U.S.–based, primarily large-cap stocks, from a variety of industries and sectors |
|
Dow |
Index of 30 of the largest and most widely held U.S.–based stocks, from a variety of industries and sectors |
The graphs below show the performance of the S&P and the Dow since 1950. Both have increased by nearly 10,000%.
Other Stock Indices
Beyond the S&P 500 and the Dow, there are a number of other indices that investors pay attention to, such as:
- NASDAQ Composite: An index of all the common stocks listed on the NASDAQ; primarily, but not exclusively, technology companies
- Wilshire 5000: A vast, broad-market index of nearly 7,000 U.S.–based stocks
- Russell 2000: A broad index of 2,000 U.S.–based small-cap stocks
- MSCI-EAFE: An index of about 1,000 international stocks from roughly 20 developed economies (western Europe, Japan, Australia, etc.)
- Various sector indices: Different indices that track the performance of specific industries or sectors, such as retail, energy, or home builders
How Investors Use Stock Indices
Investors use stock indices in two ways:
- As a general barometer of the market or a specific sector. If the S&P or Dow goes up or down on a given day, the market usually will have followed suit.
- As a yardstick against which to measure the performance of their own investment portfolios. For example, if the S&P 500 grows by 13% over one year, investors will use 13% as a benchmark for their own portfolio’s performance during that year. If their investments fail to reach that 13% mark, then their investment choices will have underperformed.
| Acknowledgments & Disclaimer |
