Indices / Indexes

All right in this topic here in this segment we’re going to be talking about indices or indexes. You know you hear a lot about these. And I think of this when I hear this is oftentimes on the nightly News or maybe you’re watching one of the main News programs and commonly down in the bottom corner they have the ticker going, right? They have the Dow commonly, the S&P 500 and usually the Nasdaq. Those tend to be your three common indexes out there that people are following or benchmarking to in a lot of cases. So I mainly want to talk about those three and what that may mean and how they got there, right? So the first one, let’s talk about the Dow. You know the Dow today is comprised of 30 stocks. But interestingly enough, you know the Dow came about in 1896 and it consisted of 12 companies at first. And they were primarily commodities focused. Some companies in there, the American Tobacco Company, The American Cotton/Oil Company, U.S. Leather Company, U.S. Rubber Company and then expanded to 30 stocks in 1928 and that’s where it sits today. It’s a price weighted index. So interesting kind of the history of where that’s at and what that is today. Another common indices, S&P 500. I think anymore this seems to be the wildly one most people go to because it has more stocks, right? The Dow only has 30. The S&P 500 actually has 505. A little bit of trivia there if you’re trying to stump somebody. But basically you get a little bigger swath of what’s going on out there. And it’s also a market weighted indices. So the bigger the companies are in there, the bigger market share they have, the more they’re going to account for what’s going on. So approximately the top nine companies in the S&P 500 actually account for about 28% of the whole index when there’s 505 stocks. So I think a pretty good swath of what’s going on in the market, a good gauge of the economy in a lot of cases, but once again indices, following 500 large companies. The other one that’s out there is the Nasdaq. So this particular one has approximately 3,300 different stocks that it’s following. So primarily Tech, internet based companies. So a lot of people refer to this as the electronic or technology index in some cases to see what’s going on in that world. They’re not all that way because remember there’s a few other things in there that financial stuff oftentimes finds their way in there and various other industries do. But primarily it tends to be that Tech based one. So hopefully that helps when you see those tickers on the screen and what that is and you know if it’s up or down on a day, what that maybe means to you. So don’t get trapped thinking that’s the only thing out there. Yes you can own those indices directly with various exchange traded funds or mutual funds, but remember there’s many different other financial tools out there and it’s important to know what meets your financial goals to make sure it’s achieving what you’re trying to do so the purpose of your money is achieved.