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In general, an index is an indicator or measurement of something. When investing, the index tracks the performance of a group of assets or a basket of securities, such as a list of publicly traded stocks and their stock prices. Investors use indices as a benchmark to measure the performance of individual stocks, bonds or mutual funds against overall market performance.
The S&P 500 and the Dow Jones Industrial Average are the two best-known stock market indices. Although these indices track a broad market and large company stock movements, other indices can only track a specific industry or market sector.
In a publishing house, an index is an alphabetical list of names and topics that are often found in non-journalistic books. In science and economics, an index is a statistical number used to measure changes over time (think: UV index, air quality index, or consumer price index). Various interest rates on certain financial products, such as adjustable-rate mortgages, often increase or fall on the basis of a certain indexed rate.
Investment indexation: index funds and ETFs
Individual stocks and actively managed mutual funds are trying to “beat” the market – that is, better than their baseline figures. But these attempts often fail, and more and more investors are using passive investment strategies: index funds or stock funds that seek to reflect the results of a broad market or sector rather than defeat it.
Index funds and ETFs are funds that hold stocks that represent an entire index, such as the S&P 500, so that performance increases and falls along with that index. As index values increase over time, index funds and ETFs have become an important way for investors to create long-term wealth.
Examples of the stock index
Here are some common indexes that follow investors – as well as a number of index funds and ETFs:
S&P 500 Index: The S&P 500 tracks the market performance of about 500 of the largest public stocks in the United States. The index represents the leading companies in the leading industries and has a capitalization, which means that each share is weighed in proportion to the dominant market capitalization. For example, a company with a total share valued at $ 100 billion weighs more than $ 10 billion.
Dow Jones Industrial Average: The DJIA is monitoring the performance of the 30 largest US. companies also known as “blue chip” stocks. Market capitalization is not taken into account in this indicator.
Bloomberg Barclays U.S. Aggregate bond index: Also known as Agg, it is a broad index that tracks the US. Bond Market Index measures the investment grade, US The taxable bond market.
Nasdaq Composite Index: Nasdaq tracks the work of more than 3,000 technology-related companies.
Russell Index 2000: This index tracks 2,000 small – also known as small – companies with a market capitalization of $ 300 to $ 2 billion.