A Beginners Guide To Stock Indexes
Author: Derek Marsh
Author: Derek Marsh
The definition of a stock index is a statistical average of a
particular stock exhange. An index is basically a group of
stocks that have something in common. Perhaps they are all part
of the same industry or they represent companies of a certain
size or geographic location.
1. Available Stock Indexes
- Dow Jones Industrial Average
- NYSE Composite index
- S&P 500 Composite Stock Price Index
2. Calculating Indexes
A price weighted index is solely based on the price of the
stock. It doesnt take into consideration the size of the
company. An index that is market value weighted, on the other
hand, takes into account the size of the companies. That way,
price shifts of small companies have less influence than those
of larger companies.
3. Using Stock Indexes To Plan Your Investments
If you base your mutual fund on an index, it will consistently
outperform ones that arent. Mutual funds based on an index
simply duplicate the holdings where the index is based on. Thus
if the Dow Jones rises by 1% the fund based on the Dow Jones
also rises by the same amount. This has the advantage of lower
costs for research and transactions - savings that can be
passed onto you!
4. The Major Players
The Dow Jones Industrial Average is based on the top 30
companies in America and is price weighted. The S&P 500 Index
is based on 500 United States corporations. It is second in
influence after the Dow Jones and is felt to be an accurate
predictor of the state of the United States economy. Outside of
the United States the most influential index is the FTSE 100
Index.
5. Types Of Indexes
Stock market indices may be classed in many ways. A broad-base
index represents the performance of a whole stock market— and
by proxy, reflects investor sentiment on the state of the
economy. The most regularly quoted market indices are
broad-base indices including the largest listed companies on a
nation's largest stock exchange, such as the American Dow Jones
Industrial Average and S&P 500 Index, the British FTSE 100, the
French CAC 40, the German DAX and the Japanese Nikkei 225.
More specialised indices exist tracking the performance of
specific sectors of the market. The Morgan Stanley Biotech
Index, for example, consists of 36 American firms in the
biotechnology industry. Other indices may track companies of a
certain size, a certain type of management, or even more
specialized criteria— one index published by Linux Weekly News
tracks stocks of companies that sell products and services
based on the Linux operating environment.
About The Author: For more great stock index related articles
and resources check out http://www.stock-advisor.info
particular stock exhange. An index is basically a group of
stocks that have something in common. Perhaps they are all part
of the same industry or they represent companies of a certain
size or geographic location.
1. Available Stock Indexes
- Dow Jones Industrial Average
- NYSE Composite index
- S&P 500 Composite Stock Price Index
2. Calculating Indexes
A price weighted index is solely based on the price of the
stock. It doesnt take into consideration the size of the
company. An index that is market value weighted, on the other
hand, takes into account the size of the companies. That way,
price shifts of small companies have less influence than those
of larger companies.
3. Using Stock Indexes To Plan Your Investments
If you base your mutual fund on an index, it will consistently
outperform ones that arent. Mutual funds based on an index
simply duplicate the holdings where the index is based on. Thus
if the Dow Jones rises by 1% the fund based on the Dow Jones
also rises by the same amount. This has the advantage of lower
costs for research and transactions - savings that can be
passed onto you!
4. The Major Players
The Dow Jones Industrial Average is based on the top 30
companies in America and is price weighted. The S&P 500 Index
is based on 500 United States corporations. It is second in
influence after the Dow Jones and is felt to be an accurate
predictor of the state of the United States economy. Outside of
the United States the most influential index is the FTSE 100
Index.
5. Types Of Indexes
Stock market indices may be classed in many ways. A broad-base
index represents the performance of a whole stock market— and
by proxy, reflects investor sentiment on the state of the
economy. The most regularly quoted market indices are
broad-base indices including the largest listed companies on a
nation's largest stock exchange, such as the American Dow Jones
Industrial Average and S&P 500 Index, the British FTSE 100, the
French CAC 40, the German DAX and the Japanese Nikkei 225.
More specialised indices exist tracking the performance of
specific sectors of the market. The Morgan Stanley Biotech
Index, for example, consists of 36 American firms in the
biotechnology industry. Other indices may track companies of a
certain size, a certain type of management, or even more
specialized criteria— one index published by Linux Weekly News
tracks stocks of companies that sell products and services
based on the Linux operating environment.
About The Author: For more great stock index related articles
and resources check out http://www.stock-advisor.info
