Which Index Should You Use? |
| Indices help us benchmark how well our investment selections are doing when compared to similar companies. Large cap companies should be compared to the Dow Jones Industrial Average and the S & P 500. Midcap companies should be compared to the S & P 400 Midcap Index. The Russell 2000 is a good comparison index for small cap stocks. If all your investments are traded on the NASDAQ you may want to consider comparing your investment choices to the NASDAQ Index. |
 The Dow Jones Industrial Average:
The Dow is an excellent gauge of market behavior. It is a benchmark used to evaluate general market trends and to compare industries. The Dow represents only 30 companies, and 30 rather homogenous blue-chippers at that represent of the market value of the 3,000 firms listed on the New York Stock Exchange. |
|
The Standard & Poor's Indexes: In
1947 the S & P 500 stock index included 371 industrial firms, plus 15 transportation
firms, 49 utilities, and 65 financial firms. The stocks in the S & P 500 Index are
equivalent to approximately 75 percent of the total value of the 3,000 firms listed on the
New York Stock Exchange. |
|
The Standard & Poors
400 Midcap Index: Is composed of 400 middle-sized firms that have total market
values between $250 and $6 billion. The index was intended to answer the complaint that
the S & P 500 only included large cap stocks. |
|
Russell 2000 Index The Russell 2000 is the index for you small cap hounds (a small cap is typically a stock with a market capitalization--the number of shares multiplied by price--less than $1 billion). This index takes the largest 3,000 stocks and then measures the bottom two thirds. Use it to compare your small caps (ones you hold as individual securities are part of a mutual fund portfolio) against the small cap "market." |
|
NASDAQ Composite Index The NASDAQ Composite is a weighted measure of every stock on the NASDAQ exchange (there are currently over 5,000). Many new issues and technology stocks dwell on the NASDAQ, making this index a good point of comparison for their performance. |