Understanding Indexes

Discussion in 'Learn how to trade or invest by asking questions' started by krylon80, Apr 20, 2012.

  1. krylon80

    krylon80 New Member

    It seems pretty obvious to me that the three major indexes followed in the US are the Dow Jones Industrial Average, NASDAQ and the S&P 500. There are literally hundreds of different indexes listed in the US (http://www.bloomberg.com/markets/indexes/country/usa/). Why are these three the particular ones that are commonly followed and thus have various index funds and ETFs which track them? And furthermore, there are dozens of indexes that being with the words "S&P 500". How do these "S&P 500" indexes relate to the S&P 500?
     
  2. Doodman

    Doodman Member won penny contest 7x won weekly contest 3x

    There are a few reasons for this. One is age. The Dow Jones, for example, goes as far back as 1896. Another factor is size, NASDAQ has a market cap of around 4 trillion. The other reason is that basically they contain the major companies.

    When you see S&P 500 and something after it, that something is representing the sub-industry of the S&P, which contains the companies that are in a particular industry.
     
  3. krylon80

    krylon80 New Member

    Thanks for taking the time to respond, Doodman.

    Given that the main factors in determining that these indexes (DJIA, NASDAQ, S&P 500) are currently the "major" indexes are age, size and holdings, it seems to me that it would be just as valid to invest in a fund which tracked any other index, depending on your goals. Would you agree?

    Also, I want to make sure I fully understand your explanation of the various "S&P 500" indexes. So what you're saying is that, for example, the S&P 500 ADVERTISING IDX (S5ADVT) is comprised of companies specifically in the advertising industry, and is therefore a subset of the overall S&P 500, but all of the companies comprising the S5ADVT Index are also included in the much larger, more broad S&P 500 index. Do I have that right?
     
  4. Doodman

    Doodman Member won penny contest 7x won weekly contest 3x

    Yes, you could certainly invest in other indexes like Russell 3000 or Wilshire 5000 for example.

    Yeah, you are correct.
     
  5. alvyeo

    alvyeo Member

    You can find out the breakdown from Standard and Poor.

    For example, in http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf--p-us-l--

    You can find out the top 10 Constituents (By Market Cap)
     

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