It's the weekend!
Grab a cup of coffee, in this thread I will explain
1. What is index investing?
2. Why S&P 500, Nasdaq 100 and DIJA are different?
3. How to create your own indexes?
Let's dive right in.
You may have noticed at the start of every book, there is a page which lists out various chapters and the page number for each chapter.
This is called the index of contents of the book.
It helps you understand what is where and give you a general idea how to read the book.
Similarly in the world of finance, we have financial indexes that are used to indicate where the overall market is trading.
Is it high or is it low?
Is it cheap or is it expensive?
These questions can be answered by looking at the index.
Fun Fact: The first ever financial index created was the Dow Jones Industrial Average in year 1896
The world created a financial index before cars, airplanes and electricity were the norm!
Stocks in 1896 used to look like this, an index was helpful to understand economy levels
If you want to read more about the history of stock market, you can go through this