Money & Career

6 indexes all investors need to know about

6 indexes all investors need to know about

Author: Canadian Living

Money & Career

6 indexes all investors need to know about

When it comes to the world’s stock markets, most Canadians only pay attention to our own biggest -- the S&P/TSX Composite Index. But there are thousands upon thousands of markets around the globe.

Watch the news and you’ll hear people talking about the S&P 500, the Dow Jones Industrial Average and Asian markets such as the SENSEX or the Nikkei Index. Investors can access most global indexes in one way or another, but you need to know what each is about before you buy. Here’s a list of some of the major markets you may want to build into your portfolio.

S&P/TSX Composite Index

Developed by Standard & Poor’s, this is Canada’s benchmark index. The index tracks 253 companies listed on the Toronto Stock Exchange, with financial, energy and materials companies making up 78.26 per cent of the businesses on the market. The top 10 holdings, which include Royal Bank of Canada, TD Bank, Suncor and Barrick Gold, account for 33.43 per cent of the index’s market capitalization.

Dow Jones Industrial Average (DJIA)

This index is one of the oldest, created in 1896 by the founder of Dow Jones & Company and the Wall Street Journal. The index follows the stock performance of 30 large American companies including American Express, Coca-Cola and IBM. The DJIA changes its makeup often, though General Electric has been on there since 1907. This index is most often used to gauge American investor sentiment.

S&P 500

The S&P 500 was developed in 1957 and quickly became one of America’s main indexes. It’s made up of 500 large-cap U.S. companies (companies with a market cap of over $10 billion) that trade on either the New York Stock Exchange or the NASDAQ. This index is far more diversified than its Canadian counterpart; its three largest sector weightings -- information technology, financials and health care -- make up only 43.43 per cent of the index.

NASDAQ Composite

While it’s less popular than the S&P 500 and DIJA, the NASDAQ Composite is still an important index for investors. It tracks all the stocks on the NASDAQ, a stock exchange founded in 1971 that holds about 3,000 companies. The majority of the companies in this index are in the technology sector, but many financial, energy and health-care companies are also listed on the NASDAQ. SENSEX 30 
The SENSEX, or the Bombay Stock Exchange, is often used to measure sentiment in the emerging markets. Like the DJIA, the SENSEX tracks 30 of the largest India-based stocks. The index covers most of the country’s main sectors, including financials, energy and information technology.

Nikkei 225

Next to the DJIA and the S&P 500, the Nikkei 225 -- usually referred to as the Nikkei -- is one of the most cited indexes in the world. This Japanese index was developed in 1950, also by a newspaper company; it tracks 225 of the country’s largest stocks. The Nikkei is important because it gives global investors a look at how Asian investors are reacting to global news. The market opens after the American ones close and its ups and downs give an idea into how other global markets might fare that day.

There are many, many indexes around the world, and deciding which one to invest in depends on where you live, how much diversification you’re looking for what type of risk you’re willing to take on. The easiest way to invest in these indexes is via a mutual fund or ETF. Do some research or talk to an adviser to figure out which index you should track.

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Money & Career

6 indexes all investors need to know about