Sometimes it is difficult for you to know how well your portfolio is performing. You should measure the portfolio performance constantly against an index. An index in the stock market is a useful tool for gauging a particular market’s performance. With the help of indexes, you could easily check your portfolio whether it is performing based on your expectation. It is essential to keep in mind that indexes don’t represent the total market, it is the tool to measure the performance and price movement of a particular market.
Next, you need to learn how the index is weighted. There are different varieties of methods for weighting indexes. Some of the most common include price-weighted indexes, Value-weighted indexes, and unweighted indexes. Each stock’s proportional share in price-weighted and Value weighted index is based on theirs share price and total market capitalization. Whereas for weighted index, the stock has equal value within the index as a whole.
The Major indexes:
There are several indexes that are used to measure the pulse of the market. However, not all the indexes are used by the investors. Some of the common indexes are given below.
Dow Jones Industrial Average:The dow dark pool index is one of the most widely known indexes. It is the only major index that is price-weighted. It tracks the performance of major 30 companies from various industries. It is also known as the Dow 30, or the Dow.
The S&P 500 Index:The Standard & Poor’s 500 is the most commonly used benchmark indicator which tracks the performance of stocks of the largest 500 companies. This index is weighted using market capitalization that gives more importance to larger companies.
NASDAQ Index:It is a fully automated network and is also recognized for its high relative concentration of technology sector stocks. It is also one of the most-watched indexes by investors.
Russell 2000:The Russell index tracks the performance of 2000 smallest companies’ stocks. Also, it is considered as the benchmark index for small-cap stocks.
