You may have heard “The market is up!” or “The market is crashing!” and you see the news tickers flashing “DJIA +2%” and you read government officials tweeting “the market is at an all-time high!” But what does this mean for you, and how can you get involved? There is an easy way for you to invest in the total stock market with as little as $1, and this guide will show you how. As always, talk to your Certified Financial Planner before making any important decisions with your investments.
What is “the DOW?”
Without getting into too much detail, the Dow Jones Industrial Average (a.k.a. DJIA, a.k.a. “The Dow”) is just an index that tracks the average value of a select group of large, publicly traded companies. It was named after Charles Dow & Edward Jones, the partners who invented the index in the late 1800’s. If you really want to know the full history of the Dow, and everything it means check out this link. If you want to know how to make money off of it, check out this ETF… SPDR Dow Jones Industrial Average ETF (DIA). Past performance does not guarantee future results, but we’re still going to share with you the average return on DIA over the past few years. Call your CFP if you want to invest some extra money in DIA, or reach out to Coast to Coast Finance if you need help finding a CFP near you.
DIA chart courtesy of finance.yahoo.com © 2021 Verizon Media. In partnership with ChartIQ
What is the S&P 500?
The S&P 500 (short for Standard & Poor’s 500 Index) is a weighted index of the 500 largest companies in the United States. When you invest in the S&P you’re buying into big names like Apple (AAPL), Amazon (AMZN), Facebook (FB), Microsoft (MSFT)…absolutely gigantic companies, some with market caps in the trillions of dollars. You should know, the S&P 500 is commonly seen as one of the best gauges of large companies and the stock market. Since this is such a popular index, there are many different funds available that track the S&P 500. One of the more popular funds is SPDR S&P 500 ETF Trust (SPY). Take a look at this historical chart, and maybe you’ll see why.
SPY chart courtesy of finance.yahoo.com © 2021 Verizon Media. In partnership with ChartIQ
What is “NASDAQ?”
This one is a little misleading, as the term "Nasdaq" is often used synonymously with “Nasdaq Composite.” The Nasdaq Composite is actually an index of many different stocks listed on the Nasdaq Exchange. The Nasdaq Exchange features enormous technology giants such as Google (GOOG), Oracle (ORCL), and Intel (INTC). If you want to get some exposure to the booming technology sector, look no further than Invesco QQQ Trust (QQQ).
QQQ chart courtesy of finance.yahoo.com © 2021 Verizon Media. In partnership with ChartIQ
What’s the difference, and why should I care?!?
The main difference in all these indexes is the basket of stocks that they comprise. We already told you about ETF’s and mutual funds; the only difference with these indexes is they are generally thought to be indicators of the overall “stock market” or “the economy.” Even better, you can easily find all of these funds on the popular trading app, Robinhood. Also, if you are invested in these index funds, you are virtually guaranteed the average returns of the stock market over time, positive or negative. If the market is up, you’re up. If it’s down, you’re down. And by doing average, you are already doing better than 49% of the rest without even trying.
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This article is for educational purposes only and is not intended to be taken as investment advice. Coast to Coast Finance does not own positions in any of the stocks mentioned in this article, nor does Coast to Coast Finance intend to open positions in, or recommend opening positions in, these stocks or funds . All investments involve risk, and the past performance of a security or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit or protect against loss. There is always the potential of losing money when you invest in securities or other financial products. Investors should consider their investment objectives and risks carefully before investing.