We hope this tutorial has given you insight into how you can track the market, use it as a benchmark and make investments.
Some points to remember:
- An index is a statistical measure of the changes in a portfolio of stocks representing the overall market.
- The first index was created by Charles Dow in May 1896. It has evolved into what we know today as the Dow Jones Industrial Average (DJIA).
- The DJIA uses price-based weighting, but most of the other indexes use market capitalization based weighting.
- The DJIA contains 30 of the largest companies in the U.S. It is what most people are referring to when they talk about "the market."
- The S&P 500 includes 500 of the largest U.S. companies. More and more, it is seen as the benchmark of the U.S. stock market.
- The Nasdaq Composite Index represents all the companies on the Nasdaq. It is heavy with tech companies and is more volatile than other market indexes.
- The Wilshire 5000 Total Market Index contains more than 6,500 stocks and is the largest index in the U.S.
- The Russell 2000 measures the performance of small caps that often get left out of the other big indexes.
- There are literally thousands of other indexes, tracking various regions and industries.
- Most mutual funds don't beat the market.
- Index funds have lower expense ratios than other mutual funds and allow investors to get the market return.
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