An Index by definition is an indicator or a measure of something that is related to finance as it is related to business, an index refers to a statistical measure of change with regards to securities and markets. An index consists of an imaginary portfolio of securities that represent a particular market or a portion of it.
There are many Indexes around the world, and each index is related to the stocks and bonds market, each index has its own method of calculating the average. In most case when a change occurs in a particular company in an index, the change of an index is more important than the actual numeric value that the index represents. However, to accurately assess how the Index has changed or progressed, investors must take into consider how far the index has fallen which is often expressed as a percentage.
The U.S. Benchmarks
As mentioned above, there are plenty of indexes around the world that keeps track of the thousands of companies all over the world, but in the U.S. these are the three most well-known
The Dow Jones Industrial Average
Is one of the oldest most well-known index, and because it is one of the pioneers in the industry it is the also most frequently used index in the world. The DJIA uses a price weighted Index. The DJIA represents about a quarter of the value of the entire U.S. Stock Market and is responsible for reporting and monitoring 30 of the largest companies in the U.S.
The S&P 500
The Standard and Poor’s 500 stocks is a much larger index than the DJIA and is made up of 500 if the most traded stocks in the U.S. This index represents 80% of the total value if the U.S.’s stock markets. It is also market weighted which is similar to DJIA. The S&P 500 holds data from different sectors like energy, Industrials, Information Technology, Healthcare, Financials and Consumer Staples
The NASDAQ Composite
Most Investors know that the NASDAQ is the exchange for those who are Gadgets geeks, because most of the companies inside this index are technology based. It is considered the marketplace for buying and selling securities as well as one of the benchmarks of the U.S. technology stocks. This index was created to enable investors to trade securities on a computerized, speedy, transparent system for the investors.