| What are the S&P500 and the Dow? |
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| Investing - Investing Basics | |||
| Written by Hugh McManus | |||
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WHAT ARE THE S&P 500 AND THE DOW ALL ABOUT?When listening to the national news, radio stations or other financial news outlets, one often hears about the Dow, the NASDAQ, the S&P, the Russell the Wilshire and so on. Each of these things is an “index”: a snapshot of the market or part of the stock market. An Index is reminiscent of an opinion poll: a sample that’s meant to be representative of the whole population. The Dow, or the Dow Jones Industrial Average (DJIA) is a collection of thirty large companies. The Dow contains companies like Intel, McDonald’s, Wal-Mart and Microsoft. The Dow is the oldest index—it’s been around for well over a hundred years. In the early days of the Dow, the index contained railroad companies, later steel companies, today more technology companies. The S&P500 is the most widely copied index. It contains 500 companies representative of the overall economy. The S&P is a “weighted index”—it’s weighted to the market capitalization of the member companies. So if one company (Company X) has a market capitalization that’s ten times that of another company (Company Y)—and both are members of the S&P—then Company X is weighted ten times as much as Company Y. If you’ve heard of an “index fund,” it’s a mutual fund that mimics the makeup of the S&P500. The Wilshire 5000 is an index that represents the overall market. Despite what the name of the index suggests, it is a weighted index of about 7000 companies. Expect an article on ETFs or Exchange Traded Funds in September.
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