Teach Your Child About The Indices
Financial Literacy For Kids: S&P 500, Dow Jones and Nasdaq
Explaining the Indices to Your Child
Indices help investors analyze what’s happening in the equity markets, illuminate investing trends and give insight into the overall health of the economy.
Unlike an exchange where stocks or other securities are bought and sold, indices track a portfolio of assets. And although there are over 5,000 indices, major stock market indices like the S&P 500, Dow Jones Industrial Average and Nasdaq Composite help investors and the media understand what’s happening in the financial markets and sometimes even the economy at large.
What is the Difference Between The top 3 major indices in the us?
S&P 500 - The Standard and Poor’s 500 Index is an index of the top 500 publicly traded companies in the United States with a focus on market capitalization. The S&P 500 is viewed as one of the best measures of the U.S. equity market and represents nearly 80% of the total value of the U.S. stock market. The S&P 500 includes companies in many industries ranging from tech giants like Apple (AAPL) and Amazon (AMZN), to financial services such as Bank of America (BAC), to retailers such as Home Depot (HD) and Target (TGT). It’s important to note that not all stocks make up an equal percentage of the S&P 500.
Dow Jones Industrial Average - The Dow Jones Industrial Average, named after founder Charles Dow and partner Edward Jones in 1896, is a benchmark index that tracks 30 blue chip publicly-owned companies that are traded on either the NYSE or Nasdaq. The Dow is a highly-regarded index that also indicates the health of the U.S. markets. Constituents of the DJIA include household names J.P. Morgan Chase & Co (JPM), Goldman Sachs (GS), McDonald’s (MCD) and Walt Disney (DIS).
Nasdaq Composite - The Nasdaq Composite is an index of more than 3,700 stocks that are listed on the Nasdaq exchange, half of which are technology companies. Apple (AAPL), Tesla (TSLA), Amazon (AMZN) and Meta (FB) make up some of the top 20 companies in the Nasdaq Composite.
Two important notes. A company can in fact be listed on multiple indices if it meets the criteria. Also, although investors cannot directly invest in an index, there are many options for investing in funds that track an index's performance.
Chances are if you have watched the news, you may have heard “The Dow dropped 5%” or, “The S&P rose 100 points.” If parents (and their kids!) get to know the most popular indices, they will be able to follow the headlines and to stay up-to-date on the latest financial news.
Looking for More?
Here is a great article on how to teach your child about the top 3 exchanges in the US. And for more on teaching your kids about investing, check out our investing guides here.
Are your favorite stocks part of the S&P 500, Dow Jones Industrial Average or Nasdaq Composite?