The Stock Market Index (3 things to know)
Jul 26, 2025Read time - 3 minutes / Disclosure
Understanding the stock market index can:
- Demystify investing.
- Simplify how it works.
- Give you confidence to invest.
Unfortunately, it can be a confusing topic.
Stock Index 101
A stock index sounds:
- Complex.
- Complicated.
- A bit intimidating.
At least that's how I felt as a beginner investor.
It can be easy to put off investing due to the confusing language.
But as life goes on (investing or not), the stock market keeps growing even with wild things happening.
Stock Market Returns Since 1989
Coming from a family that struggled with money.
And deciding I didn't want to work a 9-5 for 40 years.
I realized learning to invest was the solution.
But I didn't know any successful investors (and didn't have much money starting off).
So I read investing books free at the local Barnes and Noble.
One of the first books was:
I sure felt like a dummy when buying my first stock and rental property.
But the more I read about investing.
The more excited I got over the possibility of leaving 9-5 life early and having the freedom to do my own thing.
This eventually became a reality after leaving my 9-5 job 5 years ago.
But I never could have done it without shamelessly copying successful investors.
One of the first things I learned was the stock market index.
It's a report card for how stocks are doing.
There's 3 popular ways to check.
Let's dive in:
1. The Dow Jones Industrial Average Index
The Dow (also called DJIA) includes 30 U.S. companies.
They are:
- The largest.
- Most influential.
- Dividend paying companies.
Dividends are company earnings that are regularly paid to its stock owners (usually cash every 3 months).
Companies that are part of the Dow Jones are often called "blue chip" companies.
These companies are considered to be well known and well run.
The Dow Jones represents dividend paying blue chip companies in the stock market.
2. The S&P500 Index
The S&P500 (also called Standard & Poor's 500) includes 500 U.S. companies.
They are:
- Top companies.
- Based on their size.
Source: visual capitalist 7-15-25
Here's what the S&P500 Index looks like as a whole (it's mostly technology companies):
There are many different S&P500 funds available to invest in.
When investing in one of these funds, you become an owner in 500 of the largest companies in America.
Two of the largest S&P500 funds are:
- iShares S&P500 ETF (IVV)
And...
- Vanguard S&P500 ETF (VOO)
(this was my primary investment plus figuring out how to own real estate)
The S&P500 is commonly used to measure how U.S. stocks are doing as a whole.
3. The Nasdaq Composite Index
The Nasdaq Composite includes 2,500+ U.S. and Non-U.S. companies.
They are:
- Small companies.
- Large companies.
- Many technology companies.
More than 50% of the Nasdaq Composite includes tech stocks.
It also includes new companies (the Dow Jones and the S&P500 do not).
The Nasdaq Composite is known for many small and large technology companies.
Here's a look at all 3 indexes:
The Bottom Line
There's many ways to look up how the 3 indexes are doing, googling is one way:
Looks like stocks are up almost 5% in the last month.
Over the years I've tinkered with many different investment types.
Stocks, options, real estate, commodities, start up investing.
Each investment type seemed new and exciting in the beginning.
But each one also required a different set of skills and knowledge.
Which means more time spent learning.
The investment type I've found to take the least amount of skills and knowledge (and time)...
An S&P500 Fund (like IVV or VOO).
It's the easiest way to invest (in my opinion).
I hope this stock index 101 is useful.
That's all for today.
See you next week.
