Episode 60: Understanding the Dow Jones, S&P 500, and Nasdaq Composite

“I was excited when I finally understood what the radio announcer was talking about this morning on my commute! All of those financial terms made perfect sense to me” 

In this episode of the Stuff About Money podcast, Erik Garcia, CFP®, BFA and Xavier Angel, CFP®, ChFC, CLTC, share the story that led to that comment from one of their clients. They break down the three most popular indices for measuring stock market performance: the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite. 

You will learn how they are similar, how they are different, and generally what the indices track and tell us about the stock market.

Episode Highlights:

  • Erik emphasizes the necessity of separating emotions from financial decisions, and its impact on financial success. (3:34)
  • Erik explains discusses the Dow Jones, S&P 500, and NASDAQ. (6:51)
  • Erik mentions the Dow Jones consists of 30 big U.S. companies, with the lineup sometimes changing, such as Amazon recently taking Walgreens’ spot. (11:03)
  • Erik shares that the S&P 500, a broader index than the Dow Jones, reflects the stock market’s general direction by including a wide range of large companies. (12:44)
  • Erik explains that the NASDAQ Composite is known for its volatility, primarily includes technology and growth-oriented startups, contrasting with the stable, dividend-yielding companies of the Dow Jones. (15:15)
  • Erik shares that the S&P 500, covering 80% of the market capitalization of U.S. publicly traded companies, offers a comprehensive view of the stock market. (20:02)

Key Quotes:

  • “There’s something called a stock market index. An index is a collection of stocks that we use as a proxy or something to gauge what the stock markets are doing.” – Erik Garcia 
  • “There’s a Russell 3000, there’s a Dow Jones Industrial Transportation Index, there’s an index that tracks semiconductors, if you can think of a possible index or something that you want to track, there’s an index that exists.” – Erik Garcia

Resources Mentioned:

About Erik Garcia

Hi there, I'm Erik. How you manage your money and other resources impacts practically every aspect of your life. I help individuals and families invest plan for a more secure and predictable financial future. Thanks for taking time on my site!

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