What Do Indexes Measure?

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Market indexes (or benchmarks) are useful tools for comparing an investment’s returns with overall market trends. The following are popular indexes, each measuring a different segment of the market:

Dow Jones Industrial Average - This is the oldest and most well-known stock market index, made up of 30 actively traded blue-chip stocks. The Dow tends to be used as an indicator of market trends, rather than as an index against which to measure performance.  

Standard & Poor’s 500-Stock Index (S&P 500) - measures the performance of 500 widely held common stocks of large-cap U.S. companies.

Nasdaq Composite - The Nasdaq Composite Index is the "tech stock" index. It tracks stocks traded electronically on the Nasdaq market exchange, also called the over-the-counter market. It is a broad-based index including more than 3,000 companies, many of which are in the high-tech industry.

Russell 2000 Index - tracks the smallest 2,000 companies out of the top 3,000 in domestic equity capitalization. It represents a cross-section of the U.S. small-cap equities market.

Standard & Poor’s 400-Stock Index (S&P 400) - follows 400 common mid-cap stocks from a variety of industries.  These companies typically have a market capitalization from $2 billion to $10 billion.

Lehman Brothers Aggregate Bond Index - measures the performance of government and corporate bonds and mortgage-backed securities.

Lehman Brothers U.S. Corporate High-Yield Index - This index tracks domestic non-investment grade (“junk”), fixed-rate corporate bonds.

MSCI EAFE - This index tracks stocks traded on the largest international markets (Europe, Australia and Far East).

Note that you can use these indexes to compare the performance of an investment in your 403(b) plan, as long as you use the right index. For example, if you are invested in a large-capitalization stock mutual fund, you would likely use the S&P 500 index to compare your returns. But it is also important to note that your returns will not be exactly the same as the index, especially over short time periods.

How to Find the Indexes

The major market indexes (Dow, Nasdaq and S&P 500) can be found online at major news Web sites (like CNN and The Wall Street Journal).* When you purchase a mutual fund investment, the prospectus should include performance information for the investment and compare it to an appropriate index, which will vary depending on the type of fund and its objectives.

*  Website is provided for information only. No endorsement is implied.