What are some of the most popular indexes?

By: Source: AARP.org Date Posted: 2006-05-15 12:51:20.720880-04:00

The first few indexes were invented as a way to get a sense of which way the broad market was moving, or how it was reacting to certain news. Today, as investing has become more complex, the number of indexes available for gauging the performance of different investment vehicles has greatly expanded.

The Dow Jones Industrial Average (DJIA). It's a formula created (and sometimes revised) by the editors of The Wall Street Journal. The Dow tracks the daily gains and losses of thirty stocks from the New York Stock Exchange that the editors consider to be key players in the market and the economy. Right or wrong, their theory is this: As these thirty companies go, so goes the market. Today, experts refer to this as more sentimental than an accurate measure of market performance—although it can still affect market psychology.
The Nasdaq Composite Index measures the performance of the entire Nasdaq exchange—over 5,500 stocks. The farther we move into the Information Age, the more this index may become relevant because the majority of Internet and other high tech companies are listed on the Nasdaq.
The Standard & Poor's (S&P) 500 Index tracks the large-cap stock population. This index tracks the daily gains and losses of 500 of the largest U.S. companies (over $5 billion in market value) across a broad range of industries. Tracking many more stocks than the DJIA, the S&P 500 is often referred to by reporters as "the broader market index." Standard & Poor's is a financial research and publishing company.
The S&P MidCap 400 tracks 400 companies ranging in market capitalization from $1 billion to $5 billion.
The S&P SmallCap 600 tracks companies from $500,000 to $1 billion in market value.
The Russell 2000 is also a well-followed index, tracking 2,000 small-cap companies, many of them less than three years old.
The Morgan Stanley EAFE Index is a market-value weighted average of the performance of 1,230 non-U.S. companies representing 18 stock markets in Europe, Australia, New Zealand, and the Far East.
The Lehman Brothers Aggregate Bond Index tracks the performance of a combination of certain government bonds, corporate bonds, and mortgage-backed securities.
The Salomon Brothers U.S. World Government Bond Index is based on the Salomon Brothers World Bond Index and excludes bonds issued in U.S. dollars. The index measures the total return of government securities in major sectors of the international bond market, covering approximately 600 bonds across 10 currencies.