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MUTUAL FUND PERFORMANCE AND WHY THERE ARE NO DICE COUNTERS IN VEGAS!
A way that investors get ripped off and in a sense rip themselves off is based on the culture of performance in the mutual fund industry. If you stop and think about it there is absolutely no reason that the past has to equal the future. If you have...
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Stock Indexes: The Inside Story
Most of us have heard of stock indexes, but have only a fuzzy
idea of them at best. This article aims to clarify some of the
basics of stock indexes -- what they are and how they work.
What Is A Stock Index?
A stock index is simply an...
Your Worst Enemy To Successful Investing - The Media
How do you make your investment decisions and where do you get your information? If you're like most of the people I know, you look to the experts. That's fine, however it's important to be aware that for every expert, there's an opinion...
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THE 401(K): HOW THE INSIDER HAS STOLEN YOUR RETIREMENT!
Mutual funds were moderately successful in creating a presence in the stock market until the advent of the investment retirement account and in particular the 401(k). Corporate insiders persuaded the federal government to allow for the 401(k) in...
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Stock Indexes: The Inside Story
Most of us have heard of stock indexes, but have only a fuzzy
idea of them at best. This article aims to clarify some of the
basics of stock indexes -- what they are and how they work.
What Is A Stock Index?
A stock index is simply an average price for a large group of
stocks, either those on a particular stock exchange or stocks
across an entire investing sector. Indexes are formed from
stocks with something in common: they are on the same exchange,
from the same industry, or have the same company size or
location. Stock indexes give us an overall snapshot of the
economic health of a particular industry or exchange.
Many stock indexes exist; in the United States the most well
known are: the Dow Jones Industrial Average, the New York Stock
Exchange Composite index, and the Standard & Poor 500 Composite
Stock Price Index.
How Does It Work?
There are several ways to calculate an index. An index based
solely on stock prices is called a "price weighted index." This
type of index ignores the importance of any particular stock or
the company size.
A "market value weighted" index, on the other hand, takes into
account the size of the companies involved. That way, price
shifts of small companies have less influence than those of
larger companies.
Another type of index is the "market share weighted" index. This
type of index is based on the number of shares, rather than
their total value.
Index As Investment Tool
Another huge function of indexes
is that they can function as
investment instruments in and of themselves. Mutual funds based
on an index duplicate the holdings of the underlying index.
Thus, if index A rises by 1%, the Index A Mutual Fund rises by
1%. This has the tremendous advantage of lower costs. Plus these
index funds have been shown to generally outperform managed
funds.
The Big Indexes
One of the best-known indexes in the world is the Dow Jones
Industrial Average. It is a "price-weighted average" index
composed of the stocks of 30 of the most influential companies
in America. Some feel that 30 companies are not enough to form
an accurate assessment for so influential a measurement, but it
is reported around the globe daily nevertheless.
The Standard & Poor 500 Index is based on 500 United States
corporations, carefully chosen to represent a broader picture of
economic activity.
Beyond the United States, the most influential index is the FTSE
100 Index, based on 100 of the largest companies on the London
Stock Exchange. It is 1 of the most important indexes in Europe.
2 other important indexes are France's CAC 40 and Japan's Nikkei
225.
About the author:
Visit
Stock Trade to learn more. Ron King is a full-time
researcher, writer, and web developer with a Website
Here.
Copyright 2005 Ron King. This article may be reprinted if the
resource box is left intact.
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