IF you plan to trade stocks, it helps to get an understanding of basic terms that are mentioned frequently on TV, radio, and social media.
There are three major indices:
• Dow Jones Industrial Average
• S&P 500
• Nasdaq Composite
1. Dow Jones Industrial Average is the oldest index, dating back to 1896. It tracks the movement of 30 large public US companies. It represents “large-cap” (very big companies) like Johnson & Johnson, McDonalds and Coca-Cola. Although the companies within the Dow Jones represent only about 25 percent of all stocks, the DJIA is widely accepted as the leading indicator of market health.
Today, the index is not really as industrial as it used to be. Many of the companies included in the index such as Goldman Sachs, Visa, or McDonald’s focus their business in other categories such as finance or consumer goods.
The Dow is popular because companies in this index represent a huge chunk of the U.S. economy. While there are thousands of publicly traded companies, these big firms are large enough to represent all other large caps.
Companies listed in Dow Jones Industrial Average include Exxon, Home Depot, Dow DuPont, Johnson & Johnson, and Procter & Gamble.
2. S&P 500 is composed of 500 large companies. Founded in 1923, it is now considered one of the best overall indicators of the US stock market. “S&P” stands for “Standards and Poor’s,” the name of a market research firm. Companies listed with S&P 500 include Apple, Amazon, Alphabet, Berkshire Hathaway and Boeing.
3. Nasdaq Composite represents 3,000+ technology and high-growth companies. Founded in 1971, the Nasdaq Composite has grown popular because it’s commonly accepted as an indicator of tech-sector and innovative companies. Listed companies include Adobe, Altaba, Cisco, and Microsoft.
We also have The Russell 2000 that tracks 2,000 of the smallest players in the stock market. You can also check out its sister index, the Russell 3000 that tracks larger, more representative snapshot of the tech sector.
* * *
Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
* * *
He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at [email protected].