A stock market index monitors the ups and downs of a chosen group of stocks or other assets. Watching the performance of a market index provides a quick path to see the health of the stock market, helps financial firms in the creation of index funds and exchange-traded funds (ETFs), and assists you gauge the performance of your investments.
A market index includes the performance of a certain group of stocks, bonds or other investments. These investments are mostly grouped around a particular industry, like tech stocks, or even the stock market overall, as is the case with the S&P 500, Dow Jones Industrial Average (DJIA).
Because they go along with the performance of a mix of companies and investments, funds based on leading indexes are considered a perfect way to invest quickly and easily. Index funds and exchange-traded funds (ETFs) provide permission to a ready-made diversified portfolio of stocks and bonds and are what many investing gurus, like Warren Buffett, swear by.
Major Stock Market Indexes There are thousands of indexes in the investing universe. To help you get your bearing, here are the most common indexes you’ll probably encounter:
The S&P 500 Index- One of the most famous indexes, the S&P 500 tracks the performance of 500 top companies in the U.S., as determined by a committee at S&P Dow Jones Indices. The S&P 500 is a market-capitalization-weighted index.
The Dow Jones Industrial Average
The DJIA is narrow in scope, tracking the performance of just 30 U.S. companies as selected by S&P Dow Jones Indices. The stocks as a part of the DJIA come from a range of industries, from healthcare to technology, but are united by all being blue chip stocks. This means these stocks have a history of strong financial performance. The DJIA is one of the few price-weighted market indexes.
The Nasdaq 100
The Nasdaq 100 monitors the performance of 100 of the largest and most actively traded stocks listed on the Nasdaq stock exchange. Companies within the Nasdaq can be in different types of industries, but they generally veer toward tech and don’t consist any members of the financial sector. The Nasdaq 100 come with a market-cap weighting.