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What does it mean when you hear the Dow was near a record? What if the market falls – should start to panic? What in the investment market?

If you watch the news and listen to the radio, it might be easy to believe that rules of the stock market Dow Jones. After all, the news seems to have its ups and downs headlines. Shares of other indices have been included somewhere on the list, if mentioned at all.

What do these clues tell us? " How can we use the information in the management of our portfolios?

First, you must realize that the number is not important. What matters is the percentage change. The up and down motion says how the index is in progress. The index simply reflects the market it represents and the direction he was going for the day. Over time, you can see the biggest companies and downs of the market represented.

Most stock indexes reflect only part of the market.

For example, the Dow Jones Industrial Average Index is the oldest and most popular. It contains only 30 tracks. Each share represents one of the most influential companies in the United States and has an annual turnover of over 7 billion dollars. Represents only about 1 / 4 of the total contract value, and does not represent a company small or medium size.

The Dow is price weighted – the only clue is important. This means that if changes stock price of $ 1, has the same effect on the index, regardless of the percentage of population change. If an action has returned $ 30 for $ 1 has the same effect of a $ 70 stock with a $ 1 change.

Many financial professionals refer to the S & P 500 as market representative. Includes 500 stocks most widely traded. It is mainly composed of large companies. It covers about 70% of total market.

The S & P is an index weighted by market capitalization, which gives more weight to larger companies. A change a great time to stock blue chips have a greater impact on stock index a small business. In general, the S & P represents the market much better than the Dow.

An even broader index is observed in the Composite Nasdaq Stock Market. Increasingly represents shares in the market Nasdaq – over 5000 shares. Although it sounds great, looks Nasdaq, because it is an index weighted by market capitalization.

There are many other indications that sections lesser extent on the general market. What are the indexes are saying is how investment patterns are evolving and what the current trends. You can see photos of what happens in the stock index. You may even see a way to compare different sectors and stocks.

Note that the indices do not represent the entire market. to make wise decisions, you need to focus on their own actions and goals. Even when rates are low, stocks are moving more. Indices provide a historical perspective. It is expected that the market is underway. You can use them to see trends over a long period of time.

Martin Lukac represents RateTake.com Mortgage mortgage marketplace. RateTake matches consumers with multiple lenders offering low mortgage rates from our network of accredited lenders.

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