Stock market indices are used as a general gauge of how the stock market as a whole is doing. For example if your portfolio is down and you see that the stock market indices are down then you might blame general pessimism in the economy. If your portfolio is down and the stock market indices are up you might rethink some of your investments. Each stock market index uses a different group of stocks so comparing them can be enlightening.
Decide on what indices you would like to compare. One of the most famous stock market indices is the Dow Jones Industrial Average. The Dow Jones Industrial Average consists of 30 large-cap U.S. companies. The S&P 500 consists of the 500 companies with large market caps that are selected by a committee. These companies are weighted based on market capitalization. The Nasdaq 100 consists of international and U.S. large caps that are not in the financial sector. Each index will perform differently over time and in some cases one index will be up on a given day when another index is down.
Choose what you want to compare. There are many types of stock market indices and they differ in several ways. Some market indices, including the Dow Jones Transportation Average, are industry specific. You can compare indexes based on their purpose, sector, components, or historical and present price.
Pick a time frame for comparison. Over time the components of an index will change. The price of the index will change throughout every day in which the stock market is open for trading. Most websites will have historical information going back for many years.
Visit charting websites to compare prices and financial websites to compare other data about indexes. Websites, such as Yahoo! Finance, can give you information about stock market indices such as what are their components. The components are the companies that make up the index. Free website that offers charts include fool.com, smartmoney.com and bigcharts.com. On big charts you simply go to the advanced chart for one index and put the symbol of the index you want to compare it to in the compare to box. You can directly compare two market indices and see where they moved together, where they diverged and which performed better for a given time period.
Investing in index funds, mutual funds that track performance of an index, is a great way to invest in a diversified portfolio of equities.
Investing in the stock market is a risky form of investing compared to other investments, such as money market funds and bonds. It is important to research carefully and keep a well diversified portfolio.
- wall street with flag image by Tomasz Cebo from Fotolia.com