July 07, 2007 at 8:00 am by Tom Lydon
If you invest in exchange traded funds (ETFs), it’s in your best interest to know about indexes. Indexes are like big brothers or sisters to ETFs. ETFs track their every move, trying to outperform them whenever possible. The three most common indexes are the S&P 500, the Dow Jones Industrial Average and Nasdaq.
The S&P 500: Many investors prefer the S&P 500 because it covers a large section of the economy without getting too broad, and the companies within it are diverse. The S&P 500 is a market-cap weighted index, which means that each stock’s value in this index is based on its number of shares outstanding multiplied by its current stock price, explains Russell Bailyn of Russell Bailyn’s Financial Planning Blog.
The Dow Jones Industrial Average: The Dow (the "hip, insider" name for it) is the index that started it all. It was created in 1896. The down side to the Dow is that it only covers 30 companies.
The Nasdaq Composite: The Nasdaq is an electronic-only market with mostly technology and growth-oriented companies.
Again, these are merely three of the most popular indexes. There’s hundreds of indexes out there, and that number is growing.
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