Index investing is probably one of the most popular way of investing in the financial markets. Because, why not? You save time because you don’t need to pick stocks one by one. It’s instant diversification.
US indices are ultra-popular, too. Daily news about Wall Street aren’t complete without news about the S&P, NASDAQ, and the Dow Jones.
Are you familiar with these US stock indices?
This index is perhaps the most popular among them. The Standard & Poor’s 500 Index tracks the stocks of 500 top companies in the US.
You may be wondering how the index chooses the stocks it tracks. And even if you’re not, we’ll answer the question.
The index mainly uses capitalization as a metric, but liquidity, float, and trading history all play a vital role.
NASDAQ Composite Index
The NASDAQ Composite Index is largely popular for focusing on technology stocks. It uses market capitalization average on the stocks it tracks.
On top of that, the NASDAQ includes stocks that aren’t really in the United States.
The index also tracks other subsectors of the market like semiconductors and biotech. More importantly, it’s not exclusive to the tech industry. It also tracks stocks from other sectors.
The most interesting thing about this index is that it includes many small-cap speculative companies. That means index investing using the NASDAQ is much more excited for day traders and speculators.
The Dow Jones Industrial Average (DJIA) tracks the stocks of 30 largest and most influential companies in the US.
That means the Dow’s movements represent changes in investors’ expectations of the earnings and risks in the companies. This index gauges the stocks using price, and its calculations are pretty complex.
If you’re a trader, it’s not advisable to use the index to gauge sentiment in areas other than blue-chip stocks.
Now this is the largest index so far in the US. It tracks all of the public companies with available price data. That’s the reason behind the nicknames “total market index” and “total stock market index.”
The index represents the whole US stock market and tracks its movements. However, as you may have guessed, it’s not as popular as the other smaller indices.
Indices Outside of the US
And of course, the US isn’t the whole stock market. There are also other markets in Europe and Asia and other parts of the world. Here’s a list of the most important indices you ought to study if you want to venture into index investing.
In Asia, you got:
- S&P Asia 50 Index
- Dow Jones Asian Titan 50 Index
- FTSE ASEAN 40 Index
- Nikkei 225 Index
- SSE Composite Index
- SZSE Composite Index
- CSI 300 Index
- KOSPI Index
- KOSDAQ Index
In the Europe:
- FTSE 100 Index
- FTSE All-Share Index
- CAC 40 Index
- DAX 30 Index
- FTSE MIB Index
Investing in indices is a lucrative venture, and there’s no doubt about that. However, it’s better to have the basic knowledge about them before diving into the game. This is only a start. Check out other lessons and articles about index investing to expand your knowledge.