The Dow Jones Industrial Average Index, the Nasdaq, the S&P 500 Index and many others are called indices. They are ways of tracking how the economy and overall stock market is doing. Each of them measures this in a different way. The Dow Jones Index tracks 30 strong companies to reflect the overall market and was the first index ever created. The Nasdaq tracks all of the companies that trade on it, and the S&P 500 tracks, you guessed it, 500 companies that seem to be doing very well. Basically if an index is going up then you could guess that most stocks are going up as well. Check out the current Dow Jones price. It’s very interesting to see how it changes over time.
Check out the Dow Jones price Here.
If you look all the way back to 1929 you’ll see that the Dow Jones was at about $300 and quickly rising. Now if you look at 1932 you’ll see that it was at about $50. That means if you had invested in a company in 1929 it likely would’ve fallen very quickly throughout the 1930s. This was because of the great depression, an event that caused millions to lose their jobs and resulted in over 23% of the world population being unemployed. People couldn’t afford to buy stocks in companies, and as the demand goes down so does the price. This is a good example of how real life events can affect the stock market, but don’t worry, these events aren’t always negative. Say a company named fuzzy wool socks inc. (A non-existent company) is experiencing incredible sales. The world wants wool socks! As a result the fuzzy wool stock price goes up a ton thus affecting the price of some indices and benefiting the economy. Remember that although the price of indices goes up and down you actually can’t invest in indices. They are simply a way of tracking how the economy is doing.
Overall, indices are a great way of estimating how the world economy is doing and how much the average stock is going up or down.
See you later, Ben
P.S. If you would like to check out some other indices click on their links below.