If you invest in mutual funds or individual stocks then it’s important to measure the performance of your investments against a relevant market index. If your investments consistently lag behind the index then it might be time to come up with a new investing strategy.
The ABC index is made up of four companies. As of the end of yesterday’s trading day the ABC index was set at 4,123 points. Today, two of the companies went up in value, one company dropped in price and the fourth company stayed the same – the total value of those stocks went up by 2% so the ABC index is now 2% higher or 4205 points.
stock market index is a method of measuring a section of the stock market. Many indices are cited by news or financial services firms and are used as benchmarks, to measure the performance of portfolios such as mutual funds.
Alternatively, an index may also be considered as an instrument (after all it can be traded) which derives its value from other instruments or indices. The index may be weighted to reflect the market capitalization of its components, or may be a simple index which merely represents the net change in the prices of the underlying instruments.
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