Hey! Welcome to the Rich Mom, Poor Kid blog!
This is a blog that hopes to encourage those 30 and under (or anyone just beginning their path to financial literacy) to take steps to move toward healthier, wealthier lives of more freedom. Part of financial literacy includes understanding the concepts and vocabulary of finance.
The Rich Mom Answers Posts
The Rich Mom Answers posts (within the Rich Mom, Poor Kid blog) focus on learning the vocabulary. But, it’s important to me that my daughter and friends (If you are here with me, I consider you to be a friend!) understand financial news (and be able to participate in financial discussions.) This understanding is a foundation for being able to make investment decisions.
So, let’s get started.
Perhaps you have heard someone say that Dow is up 100 points, or the Nasdaq is down 100 points. But what are the Dow and the Nasdaq? Well, they are stock indexes. Here, I am sharing some beginner information on major U.S. stock indexes.
What is a Stock Index?
A stock index is something that tracks the performance of a specific group of stocks. The indexes are calculated based on the mathematical averages of the stocks in the group. Note that the stock groups can be based on various niches.
For example, an index can be based on tech stock. By measuring the group of stocks, the indexes can give you a better idea of how the overall stock market (or a category of stocks) is doing better than looking at how one specific stock. If share prices go up, the indexes go up.
So, just think of an index as the average of all of the stocks including in each particular index.
What are the major indexes in the United States?
- The Dow Jones Industrial Average – The Dow Jones is an index that contains 30 large blue-chip stocks.
- The Nasdaq Composite – The Nasdaq Composite tracks all but the smallest Nasdaq stock exchange companies. It has approximately 3000 stocks. It is more tech (technology) heavy than the S&P 500 or the Dow Jones Industrial Average.
- The Nasdaq 100 – In contrast to the Nasdaq Composite, the Nasdaq 100 tracks the largest 100 companies on the Nasdaq stock exchange, minus financial firms.
- The S&P 500 – The Standard & Poors 500 (S&P 500) is the average of the 500 leading U.S. companies.
Then there’s also….
- The Russell 3000 – The Russell 3000 focuses on the entire U.S. stock market but does this by focusing on the 3000 largest U.S. traded stocks.
- The Russell 2000 – Unlike the Russell 3000, the Russell 2000 focuses on small-cap firms, that comprise the smallest 2000 stocks in the Russell 3000 Index.
- The Wilshire 5000 – The Wilshire 5000, focuses on representing the entire U.S. market. Beginning with 5000 companies is how it got it’s name.
What are the most popular stock indexes of the major U.S indexes?
The 3 most popular stock indexes are the
- Dow Jones Industrial Average, the
- S&P 500, and the
- Nasdaq.
What is the Dow Jones Industrial Average?
The Dow Jones Industrial Average (also called “the Dow”) consists of 30 of the largest companies. The Dow was the first index.
How many stocks are in a stock index?
The number of stocks in an index varies based on the index. Here are some examples:
- The S&P 500 has 500 stocks.
- The Dow Jones Industrial Average has 30 stocks.
- The Nasdaq has 3000 stocks.
- The Nasdaq 100 has 100 stocks.
Can a stock be listed on multiple indexes?
Yes. A stock can be listed on more than one index. For example, the stocks on the DJIA are listed on other indexes. Case in point, Apple: Apple is on the Dow and Nasdaq indexes.
Do stocks on U.S. indexes change?
Yes. The stock in an index can change.
This is because there are criteria for belonging to each index, and a company may no longer fit the criteria for a particular index. Also, keep in mind that new companies come and some existing companies can go away.
What index is Google in?
The S&P 500 and the Nasdaq both list Google.
What index is Disney in?
Both the S&P 500 and DJIA list Disney.
What index is Lululemon in?
Nasdaq lists Lululemon.
Can I invest in U.S. indexes?
You can not invest directly in an index. But, you can invest based on an index.
Investing based on an index is done through an instrument such as an index fund or exchange traded fund (ETF.) Both of these can be bought through the same investment brokerage houses through which stocks are bought and sold.
Just so you know, one popular S&P 500 index fund is the Vanguard S&P 500 ETF. Its stock symbol is VOO.
Now, do you want to learn more on financial literacy? Check out these posts:
Ten Secrets to Building Wealth
20 Stock Words That You Should Know By Age 30
Wondering About Rich Mom?
Did you stumbled upon this post and now you’re wondering who Rich Mom is? Well, I am tea fanatic and a mother to a young adult. I have majors and degrees in business, economics, and education, and I am passionate about financial literacy and personal finance. So, I am worried about the future of young adults who are often being burdened by massive student loan debt, but at the same time have never been taught about financial literacy.
So many people work, forever living just paycheck to paycheck, never understanding the pattern that would make their lives easier. Therefore, my goal with my blog is to inspire those ages 30 and under to become more financially literate, become financially independent, and be able to live a healthy (mentally and physically), happy, generous life, in which you can help others do the same.
Remember, the information that I share is not intended as investment advice. Instead, it is meant to inspire you to learn about and do something about your personal finances.
I am not an investment advisor. Always do your own due diligence and research before investing. Check with your own investment advisor.
Also remember that past performance is not a guarantee of future performance.