| We're slowly moving towards a specific goal, but we had to take some major turns before we could reach that goal. The goal is to answer the question "Are we beating the stock market?" A major turn last week involved defining price-weighted and market-weighted concepts before we can answer the question. One more turn and I think I'm ready to pick my benchmark and see if I'm beating the stock market.
Let's look a little closer at one more concept from last week and the definition. Weighted-average, also called market-value weighted index per InvestorWords is "A stock index in which each stock affects the index in proportion to its market value. Examples include NASDAQ Composite Index, S & P 500 Index, Wilshire 5000 Equity Index, Hang Seng Index, and EAFE Index also called capitalization weighted index."
So…not all indices are created equal and we need to be aware of this. From my research I've learned that the S & P 500 Index is probably the best measure of profitability for its shareholders, if you own stocks similar to those listed in this index.
Vanguard Access Web site has an informative article "5 Myths About Indexing" that is informative and helpful as we locate as much information as possible about this very important lesson.
We have to know if our stocks are performing well. We don't have someone telling us this, and as do-it-yourself investors, we need to have this information for now and for the future, as we continue to monitor our portfolios.
The S & P 500 is widely regarded as the standard for measuring large-cap U.S. stock market performance. This popular index includes a representative sample of leading companies in leading industries. S & P 500 Index consists of companies from the NYSE, AMEX, and the NASDAQ and is a "weighted-average" which indicates that this index does not look at the stock prices alone.
The S&P 500 is used by 97% of U.S. money managers and pension plan sponsors. More than $1 trillion is indexed to the S&P 500. As a result this index appears to be the benchmark used to see how a stock portfolio is performing in relation to the overall market.
And I'm feeling very dizzy again, but I think I understand why the S&P 500 Index is the most widely used benchmark for determining whether or not we are beating the stock market.
I've located another excellent Web site, Quicken.ca that describes all the major indices in the US and in Canada. It's worth bookmarking to keep an eye on how specific indexes are doing beyond just using the 3 biggies: DOW, AMEX, and NASDAQ.
One tough lesson Moms, but oh so important! Let's keep marching ahead.
Thank you for joining me,
Joyce |
