With the struggling economy, everyone is concerned about their investments as well as their immediate financial status. Knowing your way around the stock market index and what it is can help you track any investments you do have in various outlets like mutual funds and stocks, and also help you to decide where you would like to purchase investments.
A stock market index is used to measure the performance of a specific section of the stock market. If stocks in a certain group change value, so does the index. The rise and fall is usually marked by points, but the best way to check the index value is to compare it with a previous value such as the day before. Measuring the market by these indices, rather than individually looking at stocks, helps to see the health of the market as a whole. The different types of indices are put into categories such as world or global index markets which include the large companies, and a national index which follows the markets of a particular nation.
Some Types of Indexes Include:
- The Dow Jones Industrial Average – The DJIA is probably the most well-known index, put into place when Charles H. Dow created the method of measuring the market health by taking averages of different stocks in 1896. Originally it was comprised by adding up the price of each share of several different stocks and then dividing to find the average, but market splits and other changes over the years have made the number much smaller, more like under 0.2 percent.
- The Standard & Poor 500 – an index that is supposed to represent the largest American corporations, and was first put into place in 1957. It is made up of 500 of America’s most traded stocks and is a much better indication of how the market as a whole is doing, representing about 70% of the total stock market value in the U.S. The S & P is also a good indicator because it contains stocks in many different areas, including health care, technology, energy, and industrial.
- The Nasdaq Composite Index – Commonly used to measure the health of the tech market, the Nasdaq includes more than 5,000 companies, including Microsoft. Some of the companies are not based in the United States, however. The Nasdaq also includes other stocks such as insurance, financial and industrial, but most times people overlook these to look at the tech side of it.
- The Wilshire 5000 – This index includes over 7,000 of the 10,000 stocks that are traded in the U.S. Because of this, it is generally referred to as the total stock market index. This index is still relatively new, though, since it was founded in 1974, and is generally not referred to as often as the S & P, even though it is an almost perfect representation of the entire United States Market.
It is important to follow the stock market index if you already have or are going to purchase any stocks or bonds so you can keep track of how your investments are doing. This can keep you alerted to the value of your investments and whether or not you need to make changes in your investment portfolio.