Keep Track of Your Investments
The Dow Jones Industrial Average may be the best-known stock market measure, but most savvy investors compare their mutual fund's performance to other indexes. One of the most popular is the S&P 500,
“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”—Warren Buffett
The Dow Jones Industrial Average may be the best-known stock market measure, but most savvy investors compare their mutual fund’s performance to other indexes. One of the most popular is the Standard & Poor's 500, which measures a much broader segment of the market, tracking 500 big-company stocks to the Dow’s 30 blue chips.
The index has its downsides, however. Because it is weighted by market value, price shifts for large companies like GE and IBM have a greater impact on the index than moves in the overall market. A down day for those companies would put a drag on the 500 index that could offset some or all of a rise in most of the other stocks in the group.
But even the 500 isn’t the most effective way to measure some other market segments. If you want to see how well your small-cap stock fund is doing, you might be better off comparing its results to the Russell 2000 index. For a snapshot of the big names in the tech sector, like Microsoft and Intel, the NASDAQ 100 may be a better gauge than the 4,500-stock NASDAQ composite. For a picture of the entire stock market, take a look at the Wilshire 5000 Index.
There are several other indices that track stocks on a global or regional basis and indices that follow stocks in a particular country or industry. For a fairly complete list of all the stock market indices worldwide, check out here.
9.5%—Ten-year average annual return for the Dow Jones Industrial Average.(Djindexes.com, 2008)
Read More:
• Introduction to Stock Indexes
