Index Investing: The Dow Jones Industrial Average
AAA
  1. Index Investing: Introduction
  2. Index Investing: What Is An Index?
  3. Index Investing: The Dow Jones Industrial Average
  4. Index Investing: The Standard & Poor's 500 Index
  5. Index Investing: The Nasdaq Composite Index
  6. Index Investing: The Wilshire 5000 Total Market Index
  7. Index Investing: The Russell 2000 Index
  8. Index Investing: Other Indexes
  9. Index Investing: Index Funds
  10. Index Investing: Conclusion

Index Investing: The Dow Jones Industrial Average


The Dow Jones Industrial Average (DJIA) contains 30 of the largest and most influential companies in the U.S. It is the most recognized index in the world, and the one that is frequently referred to as "the market". Despite its popularity, however, the DJIA has some weaknesses as a benchmark for the overall market.

Created By: Charles Dow on May 26, 1896. Currently maintained by Dow Jones & Company.
Number of Companies: It began with 12. Today there are 30.
Types of Companies: Various. The DJIA covers all major areas of the U.S. economy except the transportation and utility sectors.
Selection Criteria: Selection is at the discretion of The Wall Street Journal editors. Reviewed as needed.
How it\'s Calculated: The original DJIA was simply an average of stock prices. Today it uses a price-weighted system. For example, McDonalds\' stock is worth approximately 5% of the DJIA.

Advantages: The DJIA has stood the test of time. It contains 30 of the most familiar blue chip companies in the U.S. and is not considered to be volatile or risky.
Disadvantages: There are well over 10,000 public companies in the U.S. Containing only 30 companies, the DJIA doesn\'t even come close to being a benchmark for the entire market. For this reason, the S&P 500 is beginning to take over as the benchmark of choice. Also, a weighting based on market cap is generally thought to be more effective than price weighting.
Investing: The DJIA has several index funds that track it as well as an Exchange-Traded Fund (ETF) called the Dow Diamonds that trades under the symbol DIA on the American Stock Exchange (AMEX).

Index Investing: The Standard & Poor's 500 Index

  1. Index Investing: Introduction
  2. Index Investing: What Is An Index?
  3. Index Investing: The Dow Jones Industrial Average
  4. Index Investing: The Standard & Poor's 500 Index
  5. Index Investing: The Nasdaq Composite Index
  6. Index Investing: The Wilshire 5000 Total Market Index
  7. Index Investing: The Russell 2000 Index
  8. Index Investing: Other Indexes
  9. Index Investing: Index Funds
  10. Index Investing: Conclusion
RELATED TERMS
  1. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  2. Dividend

    A distribution of a portion of a company's earnings, decided ...
  3. Sharpe Ratio

    A ratio developed by Nobel laureate William F. Sharpe to measure ...
  4. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  5. Historic Pricing

    A method for calculating the value of an asset using the last ...
  6. Lion economies

    A nickname given to Africa's growing economies.
  1. What is the difference between pips, points, and ticks?

    Learn the differences between points, ticks and pips and how each are used by investors to measure price changes in stocks, ...
  2. Does index trading increase market vulnerability?

    Learn how the rise in popularity of passive ETFs and mutual funds tracking indexes has increased the correlation among stocks, ...
  3. What does a high turnover ratio signify for an investment fund?

    Find out more about the turnover ratio, what the turnover ratio measures and what a high turnover ratio indicates about an ...
  4. What is the difference between passive and active asset management?

    Find out about active asset management, passive asset management, how these strategies are utilized and the differences between ...

You May Also Like

Related Tutorials
  1. Mutual Funds & ETFs

    Top ETFs And What They Track: A Tutorial

  2. Retirement

    Analyzing The Best Retirement Plans And Investment Options

  3. Mutual Funds & ETFs

    Guide To ETF Providers

  4. Mutual Funds & ETFs

    Complete Guide To Investment Companies, Funds And REITs

  5. Trading Systems & Software

    How To Analyze ETFs With Bloomberg

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!