What is a stock market index?

A stock market index measures a section of the stock exchange. It is determined by calculating the prices of certain stocks. Three of the most popular stock market indices in the USA are S&P 500, Dow Jones Industrial Average (DJIA), and Nasdaq Composite. Stock market indices may be classified in different ways.

How are stock indexes weighted?

Stock indexes can follow different weighting methods, such as a: Market capitalization-weighted index adjusted for float; and Equally-weighted index. The Dow Jones Industrial Average is a price-weighted index; and The S&P 500 is a market capitalization-weighted index. The weighting method used carries implications on the performance of an index.

What are the most popular stock market indices?

Three of the most popular stock market indices in the USA are S&P 500, Dow Jones Industrial Average (DJIA), and Nasdaq Composite. Stock market indices may be classified in different ways. A “global” or “world” stock market index, such as the MSCI World or the S&P Global 100, contains stocks from multiple regions.

Should you invest in a stock market index?

A higher percentage gain means a bigger profit for you if you invest in funds that track the index, so it's better to focus on percentages than on point movements. Moreover, even the most popular stock market indexes don't generally measure the performance of the entire market.