Stock Market Index Definition (BEGINNER FRIENDLY EXPLANATION!)
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Stock Market Index Definition (BEGINNER FRIENDLY EXPLANATION!)


S&P 500, Nasdaq, the VIX, Dow Jones there’s a lot of stock market indexes out there and you’ve Probably either heard about them in the news or heard somebody talk about them at some point and just kind of felt a little Confused and didn’t really want to ask because you think everyone knows what it is. If you’re not sure what a stock market index is And you kind of want to know how they work then you’ve definitely landed on the right video. So if you want to learn more about things like: the nine major stock market indexes that all investors need to know about, what goes into the calculation of an index and Most importantly how you can use stock market indexes to make money, then… keep watching! Stock market indexes are nothing more than a mathematical Average that quickly tells you how the stock market is doing I think we over complicate things in our mind Especially when it’s related to finance and investing, but I guarantee all of you are already familiar with indexes For example, if you and 10 of your friends each weighed yourselves and you calculated the average weight of the entire group That would be an index. And as your weights changed the index would change too. Anything That’s a calculated average of many different components can be considered in index. The S&P 500, which is the most widely used stock market index is the average of the 500 largest US companies all rolled up into one easy to read average price. The level of the S&P 500 index is Expressed as points the S&P is up 10 points. It’s down 10 points. For example. The real time calculation of stock market indexes is a complimentary service provided by major financial data companies. The name S&P 500 comes from Standard & Poor’s the Company that officially created the index. And obviously the 500 part of the name comes from the 500 components in the index Although there’s a lot more than 500 stocks in the US There’s actually over 4,000 the S&P 500 is a pretty accurate barometer of how the overall US stock market is doing because all of the largest and most Influential companies are part of the S&P 500 index. In the US when you hear people say the market is up today They’re probably referring to the S&P 500 not because S&P 500 index is the market but because the index is a Representative chunk of the market. Other countries have their own stock market indexes. Japan has the Nikkei 225, Brazil has the Ibovespa, the UK has the FTSE 100, and in Germany there’s the DAX, in Korea and there’s also the Kospi and so on and so forth. Just flip to the back of the Economist magazine And you’ll find a comprehensive list of all the countries and their stock market indexes If you want to know how the economy of a particular country is doing You can just look at the stock market index for that country. Stock market growth and decline Often goes hand-in-hand with economic growth and decline for example Venezuela’s economy has been falling apart under the regime of Nicolas Maduro and it shows in its stock market performance Venezuela’s stock market index the IBVC has gone down by 94 percent last year There are nine major indexes that all investors need to know about. Following these indexes Will keep you informed about the economy and as a result, help you make smarter decisions with your money Oh, and if you’re liking this video so far go ahead and give this video a thumbs up. Okay so here are the top 9 indexes you need to know about. US corporations are very International and they play such a big role in global markets So the S&P 500 is the most followed stock market index in the world Then there’s the Dow which is short for Dow Jones Industrial Average And the Dow is made up of the 30 largest companies in the US personally, I think the Dow is a bit redundant because it’s 30 components and those are already included in the S&P 500 index but a Lot of people like to look at it as a very pure indicator of how the US stock market is doing. There’s also the Nasdaq which consists of over 3,000 stocks and has a heavy bias towards technology companies. If you’re outside of the US You’d want to follow the main stock market index in your country. For a more global perspective The MSCI World Index covers all the major stocks across 23 developed countries So this is often used as a barometer of the world economy as a whole. There’s also the MSCI Emerging Markets Index, which covers the stock markets across 24 emerging market countries So countries like Brazil China and India are all in this index There are indexes for everything not just stock markets the S&P GSCI Commodity Index tracks commodities like oil gold silver soybeans corn cotton wheat and even cattle So if you want to know how a certain asset class has performed over the last few years You can just look up the most widely used index for that asset class For example for a quick snapshot of real estate. You can look up the Dow Jones Real Estate Index The Dollar Index is another super important index that tells you how strong the US dollar is Relative to other major currencies like the Euro Pound Japanese yen and Canadian dollar. Last but not least You should also know about the VIX Also known as the fear index. The VIX gauges the level of fear present in the stock market by tracking the price levels of options Which are complex financial instruments used as insurance against disaster. When the financial crisis happened in 2008 the VIX spikes from eighteen to seventy nine, and the S&P500 Dropped 20% over the same period when the level of fear in the market Rises the VIX also rises. So far we’ve covered what stock market indexes are how they work which ones you should know about. Now Let’s talk about how you can use stock market indexes to make money as great as they are You can’t actually invest in an index So you can’t invest in the S&P 500 Index or any of the ones that we’ve talked about actually. That’s because an index is just a mathematical average Published by a financial data company. So although you can’t invest in an index because that doesn’t make sense you can’t invest in just something that’s a Calculation, you can invest in an index fund. An index fund is an investment vehicle that mirrors in index for example You can invest in an S&P 500 index fund such as the Fidelity 500 index fund or the Vanguard 500 index fund this would immediately make you a part owner in all 500 companies in the index. If the S&P 500 index goes up 5% your investment in the index fund also goes up 5%. And of course the opposite is also true If the S&P 500 goes down 5% Your investment in the index fund also goes down 5%. If you don’t know how to pick stocks then index funds are a great way To get started. Investing in index funds is a convenient way to basically own a piece of the entire economy in S&P 500 index fund Will have a lot of stocks in retail, construction, technology, health care, and a whole bunch of other industries So when you’re just getting started with investing you have to decide whether you want to take a passive approach to investing and just buy Index funds or if you want to take the active approach And learn how to select individual stocks. For more beginner friendly info on stock investing make sure you also check out these two videos here and If you’re new to the channel hit that subscribe button for new videos every week. Always remember to go after your dreams unapologetically and to live life on your terms Cheers

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