January 10, 2022
Q. On the news they report the DOW, S&P 500 and NASDAQ - what does that actually mean, and can I invest directly into those?
A. Excellent question! You cannot invest directly into these indexes per say, but you can invest in ETFs and Mutual Funds that mirror these indexes. Here is a brief explanation of what these indexes are, but understand there are so many other indexes that exist:
DOW - these are the 30 largest US companies (that’s right only 30 companies) and it is a price-weighted index (sum of all the stock prices for the 30 stocks divided by 30)
S&P 500 - these are the 500 largest US corporations by market capitalization (number of shares outstanding multiplied by the stock price)
NYSE - this is an index that tracks the 2,800 stocks listed on New York Stock Exchange based on market capitalization
NASDAQ - this is another exchange that stocks can trade on. It has a high concentration of technology companies. There are over 3,000 companies that trade on this market capitalized exchange.
EAFE - this is a market capitalized index that tracks the international market (Europe, Australasia, and Far East); it is comprised of 21 country indexes
Bloomberg Barclays US Aggregate Bond Index - not as commonly quoted, but should not be overlooked, this index covers a wide range for the US bond market. It covers all the major types of bonds, such as Treasury, municipal, and taxable corporate bonds.
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