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

The Dow Jones Industrial Average (DJIA) tracks 30 large-cap blue chip U.S. companies that are, for the most part, household names – including giants like Apple, Coca-Cola, Disney, Microsoft, Nike and Visa. It’s the most recognized index in the world, and one that is frequently referred to as "the market” (as in, “the market is up today”). The index covers all industries except transportation and utilities, which are covered by the Dow Jones Transportation Average and Dow Jones Utility Average, respectively.

Despite its popularity, the DJIA has two major weaknesses. One is that is includes only 30 stocks out of the more than 5,000 stocks that trade on the NYSE and Nasdaq. This means that it’s not necessarily the best indicator of how the entire market is performing. The other shortcoming is a result of the way it’s calculated. Because it’s a price-weighted index, the more expensive stocks influence the index more than the less expensive ones. Still, the Dow remains one of the most closely watched indexes in the world, more than 120 years after it was created. 


Created By:

Created by Charles Dow in 1896. Currently maintained by S&P Dow Jones Indices.

Number of Companies:

30 U.S. blue-chip companies.

Types of Companies:

Various. The index covers all industries except transportation and utilities (those are covered by the Dow Jones Transportation Average and Dow Jones Utility Average, respectively).

Selection Criteria:

Selection is at the discretion of the Averages Committee at S&P Dow Jones Indices. The index universe consists of securities in the S&P 500. Changes are made on an as-needed basis.

How it's Calculated:

The original DJIA was simply an average of stock prices. Today it uses a price-weighted system, which means that the more expensive stocks have a greater influence on the index than the less expensive ones.


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: Because the Dow contains only 30 companies, it’s not a good benchmark for the entire market. For this reason, the S&P 500 has taken 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 called the SPDR Dow Jones Industrial Average ETF (DIA). You can also trade the e-mini Dow futures contract (ticker symbol YM). (To learn more about the e-minis, see Beginner’s Guide to Trading the E-Mini Futures Contracts.)

Index Investing: The Standard & Poor's 500 Index
Related Articles
  1. Insights

    Why You Need To Know About S&P Dow Jones Indices

    This Article introduces the S&P Dow Jones Indices (SPDJI), available variant categories and index trading advantages
  2. Insights

    The Enduring Importance Of The DJIA

    The Dow Jones Industrial Average (DJIA) continues to be an important indicator of the economy, though some say the DJIA doesn't have the same import as it once did.
  3. Investing

    DIA vs. IWL: Comparing ETFs with the Largest U.S. Companies

    Find out how the SPDR Dow Jones Industrial Average ETF compares with the iShares Russell Top 200 as mega-cap exchange-traded funds.
  4. Insights

    A History Of Wall Street Profitability

    Learn about the performance of the Dow Jones Industrial Averages (DJIA) through the decades.
  5. Investing

    The Top Position Holders In The DJIA

    Find out who the major players are in the Dow Jones Industrial Average and who has been kicked out recently.
  6. Investing

    The Pros and Cons of Indexes

    Learn about the advantages and disadvantages of stock indexes and passive index funds. Discover how there is an opportunity cost to using index funds.
  7. Investing

    Dow Touches 19,000

    As markets continue their run higher, investors wonder what the next stop is.
  8. Investing

    A Different Way to the Dow

    The Dow Jones Industrial Average is one of the most widely followed equity indexes, but this ETF offers a different approach to the old blue-chip Dow.
  9. Financial Advisor

    The 3 Most Shorted Dow Stocks (V, CAT)

    Read about three heavily shorted stocks that are components of the Dow Jones Industrial Average, including one company with recent success.
Frequently Asked Questions
  1. What are the differences between divergence and convergence?

    Find out what technical analysts mean when they talk about a divergence or convergence, and how they can affect trading strategies.
  2. Can coupon in fixed-income security effect bond yield maturity?

    See how fixed-income security investors can expect to use coupon on semi-annual payments if the bond or debt instrument is ...
  3. How are savings bonds taxed?

    Learn who is responsible for reporting U.S. EE savings bond interest for taxation and when the interest can be reported for ...
  4. What is the difference between inflation and deflation?

    Determine how inflation and deflation affect prices, employment, loans, and the central banks. Economies frequently teeter ...
Trading Center