Stocks Market Indexes - DJIA, S&P500, NASDAQ

  
 

Stocks Market Indexes - DJIA, S&P500, NASDAQ

The way money mangers measure their success in the stock market is to compare their results against a benchmark to see if they outperformed the benchmark.

Investments come in two flavors, debt or equity. Debt provides us with financing for our short-term goals, and we use equity to finance our long-term goals. Both have a place in your portfolio. And here you learned that the stock market can go up and down.

The way money mangers measure their success in the stock market is to compare their results against a benchmark to see if they outperformed the benchmark. If you were an athlete, you would do the same thing---look for something to compare your performance against.

You must, however, compare apples with apples. When listening to the evening news on the way home form work, you hear that the market was up for the day. The DOW was up, NASDAQ was down, and the S&P was up. What does that mean to you? They are all indexes that give us an indication of what is happening in the stock market.

Indexes are a collection of stocks or bonds, and when you hear the results of the day, it is an average, sometimes a weighted average of what happened within the indexes. If you own an individual stock, it may be up or down for the day compared to the index.

You'll want to use an index to measure how well your mutual fund or stock has done, but doing this daily will drive you to the funny farm. Do it annually. You'll also want to measure your mutual fund against other mutual funds in the same category. For instance, if you  have a balanced mutual fund that owns stocks and bonds, you don't want to measure it against just a stock index because it will come up short. Use a mutual fund rating service like Morningstar to help you.

Here is a list of the most popular indexes and what's in them. The DOW, which you hear the most about, has only 30 stocks in it. Generally, it's not the best barometer of the stock market. Look at what the S&P is doing to get a broader perspective.

  • Dow Jones Industrial Average (DJIA). Price-weighted average of 30 actively traded blue-chip stocks. Prepared and published by Dow Jones & Company (the wall Street Journal), it is the oldest and most widely quoted of all the market indicators. The average is quoted in points, not in dollars.

  • Morgan Stanley International World Index. This index is complied by Morgan Stanley, a large brokerage and financial services corporation. The index measures global market, including the United States, and is weighted both by country and by industry.

  • Morgan Stanley EAFE Index. This is Morgan Stanley's international index. It measures market performance in Europe, Australia, and the Far East (EAFE).

  • The Russell 2000 Index. The Russell 2000 is complied by the Frank Russell Company. This index measures the performance of smaller companies---currently those with a market value under $750 million.

  • NASDAQ Combined Composite Index. This index is based on the National Association of Securities Dealers Automated Quotations (NASDAQ). It is a market-value-weighted index of all the stocks listed on the NASDAQ. This is very heavily weighted in technology stocks.

  • Standard & Poor's 500 Composite Stock Price Index. This index is complied by Standard & Poor's Corporation, a large financial services company that also publishes credit ratings. The stocks in the S&P 500 is a popular represent approximately 70 percent of the total market value of all publicly traded U.S. corporations, the S&P 500 is a popular indicator or overall stock market performance because it measures such a broad segment of the equity market.

  • Wilshire 5000 Equity index. The broadest of all the averages and indexes, the Wilshire Index is market-value-weighted and financial services company, to measure the broad bond market. The index contains more than 4,000 government and corporate bonds.