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Using Market Indexes to Measure Performance
If you want to measure how well your investments are performing, consider using a market benchmark index. Indexes provide a yardstick to compare similar investments or types of investments and can be a key resource for you. Find the index that most closely matches your investment so you’re comparing apples to apples.
The Dow
S&P 500
Wilshire 5000
S&P 500/BARRA Value
S&P 500/BARRA Growth
Russell 2000
EAFE
Bond Index
The Dow
The Dow Jones Industrial Average (DJIA) is the oldest and most widely quoted market index. It’s made up of 30 actively traded, established industry and service companies, including IBM, Disney and General Motors. The Dow is measured in points and computed by adding the stock prices of these companies and dividing by a factor that adjusts for distortions caused by stock splits over the years.
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S&P 500
The Standard & Poor’s 500 Composite Stock Price Index is composed of 500 established companies. It is one of the most widely used benchmarks of U.S. equity performance. Companies in the S&P 500 are selected for market size, liquidity and industry group representation.
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Wilshire 5000
The Wilshire 5000 Equity Index provides a representative index of the entire U.S. stock market. It measures performance of all U.S.–headquartered equity securities with readily available price data. Created in 1974, the index then contained 5,000 U.S.–based companies. Despite its name, the Wilshire 5000 now has more than 7,000 stocks.
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S&P 500/BARRA Value
Value investors or investors concerned about dividend yields can consult the Standard & Poor’s 500/BARRA Value Index, which only charts value stocks. The Value index is a capitalization–weighted index with S&P 500 stocks that have lower price–to–book ratios, which indicates that the stocks may be bargains. The stocks of the index, in general, share other characteristics associated with value stocks.
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S&P 500/BARRA Growth
The Standard & Poor’s 500/BARRA Growth Index is a capitalization–weighted index with S&P 500 stocks that have higher price–to–book ratios, which indicates that the stocks exceed the worth of a company’s assets. The stocks of the index, in general, share other characteristics associated with growth stocks.
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Russell 2000
This market capitalization–weighted U.S. equity index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The index focuses on small–capitalization companies and is one of the most cited indicators of small–stock performance.
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EAFE
You can consult the Morgan Stanley Capital International Europe, Australasia, Far East (EAFE) Index to chart overseas stock activity. EAFE is a widely followed group of stocks from 20 developed market countries.
To compare emerging market investments, you can refer to the Morgan Stanley Capital International Select Emerging Markets Free Index, which includes the stocks of 15 countries (Argentina, Brazil, the Czech Republic, Greece, Hong Kong, Hungary, Indonesia, Israel, Mexico, the Philippines, Poland, Singapore, South Africa, Thailand and Turkey).
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Bond Index
Although indexes are most often discussed in reference to stock investing, benchmarks also can be found for bonds. The Lehman Brothers Aggregate Bond Index, for example, mirrors the entire U.S. taxable bond market, including U.S. Treasury and government agency securities, mortgage–backed securities and medium– to high–quality corporate bonds.
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Indexes are not investment products available for purchase.
This information is for educational purposes only and is not intended as investment advice.
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