Index Funds Explained
We have all heard of the familiar indices such as the Dow Jones Industrials or the S&P 500, but we dont necessarily know how they relate to us as investors.
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We have all heard of the familiar indices such as the Dow Jones Industrials or the S&P 500, but we dont necessarily know how they relate to us as investors.
An index in a book helps us find a particular topic or subject within a big book, and similarly an index of stocks helps us to sample a much larger group of stocks, and to learn about the entire subject by watching just a portion of it.
The indices are basically just lists of particular stocks that meet certain guidelines or criteria for being included in the index.
For example, the stocks that make up the Down Jones Industrials meet certain qualifications. They are stocks in industrial companies, and they are stocks that are traded on the Down Jones. Furthermore, the creators of the index choose them because of the way they tend to represent the other stocks that fall into those categories. So when they choose index stocks, it is sort of like choosing a political representative who
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