You might hear it on the radio, in a news broadcast, or read it online. The stock market used to be this esoteric industry that only a few people were a part of and even fewer knew anything about. But then, as more and more of the public became investors through their 401(k)s, they started to take more of an interest in it. Now, investing and the stock market is like the Super Bowl every Monday through Friday. We have entire TV networks that do nothing but talk about the stock market. We have radio programs, books, magazines, and websites dedicated to all things investing. The stock market has become sexy.
You’ll often hear reports about the market saying it was up today or it was down today, or that it was up and then down today. It was down and then up today. You get the point. Most of this is just non- sense chatter. Does it really matter what happens in the stock market in a single day? Usually, not so much.
But, it is important to at least know what the heck they mean by the stock market was up or down.
The stock market is the place buyers and sellers come together, but it is also the term used to describe how not just one stock is doing but how a lot of stocks are doing. A single stock is ownership in a single company, like Tesla, Johnson & Johnson, or ExxonMobil. The stock market is looking at how they all did today. Were they up or down?
A lot of times, when you hear about the stock market, they are referring to something called the Dow or the Dow Jones Industrial Average. This is 30 big U.S. companies such as AT&T, Wal-Mart, American Express, Nike, and Disney. On any given day, these 30 stocks go up or down. Take all 30 of them together, and you can deter- mine if the Dow is up or down that day. But there are thousands of stocks that trade on the stock market each day, so how can these 30 represent “the stock market”? Well, they can’t really. That’s why most astute investors disregard the Dow and focus instead on the S&P 500.
This is the same sort of thing as with the Dow, but instead of a collection of only 30 companies, the S&P 500 is made up of 500 companies.
So you can see how the S&P 500 gets you a much better idea of how the overall market did.
The next time you hear, “The market was down today,” see if they mention the Dow or the S&P 500. And while you’re listening, you just might hear something about a bull or a bear. Strange, I know. But in the next lesson, you’ll get the inside scoop on what a bull and a bear have to do with investing.
The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.