If you own shares in a mutual fund that invests mainly in stocks, you probably have an interest in what the market is doing. There are many indexes that measure activity in the various stock markets. Some of the more popular indexes in the United States are the Dow Jones Industrial Average, NASDAQ®, the S&P 500®, the Russell 2000® and the Wilshire 5000®. A well-known measure of foreign stocks is the MSCI EAFE Free® Index.There is a brief summary below to guide you to the appropriate index of your investment needs.
The Dow Jones Industrial Average
The Dow Jones Industrial Average (DJIA) is the oldest market indicator in the United States. It is comprised of 30 blue chip companies. Each company in the DJIA has sales of more than $7 billion each year. Originally, the price-weighted average was determined by taking the price of each company's stock and dividing it by the number of companies. That approach is still used today and is adjusted to preserve historical continuity.
Initially consisting of 12 industrial companies, the DJIA was increased to 30 companies in 1928. Only General Electric® remains as one of the 12 original companies included in the DJIA today. Other companies include Microsoft®, Intel, Johnson & Johnson®, and Exxon Mobil®.
To be included in the DJIA, a company must have a history of substantial growth and a wide interest among investors. Dow Jones & Company also has the Dow Jones Transportation Averages and the Dow Jones Utilities Averages.
The NASDAQ National Market Index tracks the more than 5,000 companies listed on the NASDAQ Stock Exchange and includes domestic and foreign companies.
Each company is weighted based on its market value. Many are associated with technology and other highly speculative areas. The NASDAQ 100 Index tracks the top 100 companies in the NASDAQ Index.
The NASDAQ has been in operation since 1971. It is calculated throughout the day and is one of the most widely quoted of the major indexes.
Standard & Poor's 500 Index
The Standard & Poor's (S&P) 500 Index tracks the 500 most widely held U.S.-based common stocks. It is a market-value weighted index that does not contain foreign-based companies. Although the S&P 500 focuses on the large capitalization segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market.
Some of the companies in the S&P 500 include Microsoft, General Electric®, Cisco® and Wal-Mart®. While the index tracks only 500 companies, those companies account for more than 70% of all capitalization of the U.S. equity markets. As of February 28, 2013, the average market cap of the S&P 500 was $27.9 billion.
The State Farm® S&P 500 Index Fund attempts to mirror the returns of the S&P 500 Index. Fund assets are invested in a master fund called the S&P 500 Index Master Portfolio. It is advised by BlackRock Fund Advisors (BlackRock), a subsidiary of BlackRock Institutional Trust Company, N.A.
Russell 2000 Index
The Russell 2000 Index tracks the smallest companies' performance in the Russell 3000® Index. As of February 28, 2013, the weighted average market capitalization of companies represented in the index is $1.5 billion, with the largest company having $6.1 billion in market capitalization. Because the index focuses on so many smaller companies, it is highly diversified and very volatile.
Wilshire 5000 Index
The Wilshire 5000 Index is also known as the Total Stock Market Index because it seeks to track nearly every publicly traded stock in the United States.
Currently , the index has approximately 7,000 U.S.-based companies and is the world's largest index in market value. The index is weighted by market value which means the greater the value of the company, the more the stock will influence the index.
The top 500 companies in the index account for more than 70% of the index value.
MSCI EAFE Free Index
When created in 1969, the Morgan Stanley Capital International Europe Australia and Far East Free Index (MSCI EAFE) originally tracked stocks from 14 countries outside the United States. Today, it has grown to include companies in 22 countries.
The index includes companies throughout the world, with most in European companies. The MSCI EAFE Index is rebalanced on a quarterly basis; however, changes such as a company spinoff or acquisition may prompt an index change at any time.
The State Farm International Index Fund seeks to match as close as possible before fees and expenses, the performance of the MSCI EAFE Free Index. Assets of the Fund are sub-advised by Northern Trust.
Investing involves risk, including potential for loss.
Diversification does not assure a profit or protect against loss.
The stocks of small companies are more volatile than the stocks of larger, more established companies.
Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations.
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