The Stock Market is an organization where investors can buy and sell shares, or pieces, of companies. Famous companies like Apple, Disney, Amazon, and Visa trade on the stock market.
Investor’s use stock indexes to monitor performance of the overall stock market along with comparing the performance of their personal investments. The major stock indexes that you will encounter are the Dow Jones or Dow, S&P 500, and the Nasdaq.
The Dow Jones
The Dow Jones stock index measures the performance of 30 major companies listed in the United States. The index was founded in 1896 and remains an integral part of the financial system. The Dow Jones originally followed industrial companies that operated in the steel, oil, and manufacturing industries. However, in recent history the components have shifted to represent the broader world economy. Iconic companies like Apple, Home Depot, Coca-Cola, and Verizon are part of the index. These companies are also referred to as “blue-chip” companies, meaning they have been established as leaders in their respective industries.
The S&P 500 is a stock index that tracks the performance of just over 500 companies listed in the United States. The index is broader with respect to the number of companies and industries represented. Similar to the Dow, the S&P 500 includes popular companies like Apple and Verizon. However, the index also includes companies like Delta Air Lines, Dollar General, and Under Armour. On average, the S&P 500 has returned around 8% to investors each year.
The Nasdaq is a stock index that primarily tracks the performance of technology companies listed in the United States. It was founded in 1971 to modernize stock trading using the internet. Companies like Mastercard, Google, and Amazon are major components of the index. The Nasdaq is infamous for its role in the early 2000’s tech bubble, an event that caused highly valued stocks to lose large portions of their value. Today, the Nasdaq remains a popular stock index.