Index



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An index is a statistical means of calculating a change in an economy or market.  The index is typically a weighted average representative sample of the market. 

For instance, the consumer price index is a basket of goods and services that is used to represent what a typical consumer will purchase during a given time period.  Changes in the price of this basket of goods lets economist know if prices increased or decreased during that time period.

The percentage change in an index is the most important value.  This is because each index is calculated in a slightly different way and changes are calculated from a base value. Each index has a different base value, so the numeric numbers are not as significant as the percentage changes.

There are numerous indexes that cover a broad range of markets and sectors within those markets.  One of the most famous indexes is the Standard & Poor’s 500 which is often used as a proxy for the U.S. stock markets.  Other indexes, such as the S&P 100 track a global basket of stocks.  The Japanese Nikkei 225 and the British FTSE 100 track are country-based indexes.

There are other indexes for regions, such as Asia/Pacific, as well as investment classes such as a precious metals index. 

Mutual funds mirror various indexes.  Buying shares in these funds allows an investor to have the return represented by the index without having to go through the time, money and effort to replicate the index.

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