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Stock Indexes > Standard & Poor's 500, 400 and 600 |
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Standard & Poor's 500, 400 and 600
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The S&P 500 composite is
the third most widely-cited and well-known index
based on the 500 major corporations in the country
and including companies listed on all three major
stock exchanges as well as a few select foreign
corporations who also have historical influence
the American markets. The S&P 500 index is
market-cap weighted, so that companies with the
greater total stock value also carry the greater
weight in the index.
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The S&P 400 works very much like the 500, but contains
the 400 next-largest corporations, mid-caps, many of
which are in the process of becoming large-caps and one
day in the not too distant future making it to the 500
themselves. With the 500 and the 400, Standard & Poor's
manages to cover the top 900 performing corporations in
the country.
The S&P 600 has only been around since 1994 and
represents "small-cap" companies, or the next 600
top-performing corporations in the nation. As companies
grow or die, they move either from the 600 to the 400
and 500, or are de-listed by the S&P board due to poor
health and flagging profits.
Other countries also have stock market indices that
track their markets. Two examples are the TSX bank Index
and TSX 60, which tracks the Canadian Toronto Stock
Exchange.
If you spend any time looking at market indices online,
you'll find a slew of lesser-known and unknown ones, all
with their own take on how the market should be
described. The top three indices are plenty for most
people, having as they do their own differing
corporations and weightings, with the resulting
confusion in actual numbers reported at the end of the
day.
Probably the most important thing the various stock
market indices do for the average Joe and Jane is to
tell them when to be afraid. Now, it's important to
truly know when to be afraid, instead of letting the 6
o'clock News staff tell you, because they like to scare
you: it's what often passes for news these days. So,
remember that when the News announces a drop of say, 30
points in the Dow, that's out of a total of around
11,000. In other words, not a very big deal. Keep in
mind that, in 1929, when the stock market crashed, it
lost more than 80% of its value, and the Dow total at
the time just before the crash was under 400 (as opposed
to the more than 11,000 we see today). If the stock
market lost 80% of its value today, it would zoom in
points down from around 11,000 to about 2,200. Believe
me, it's something you would notice!
If you're new to reading the market indices, pay
attention to the numbers and points gained or lost, but
pay especial attention to the percentages. The
percentages are calculated from the numbers. What's
easier; knowing that you got 467 points out of 500 on a
test, or knowing that you got 93.4%? Probably the second
one, if you care about your overall grade. When you look
at the stock market index, whether it's the Dow, the
NASDAQ or one of the many others, look at the percentage
of change to get an idea of the general stability. A
change of 3 or 4 % (often expressed as .03 or .04) is
normal, and nothing to fear.
Stock indices are used for all sorts of sexy things:
individual brokers or brokerage firms and mutual fund
managers may have their stock picking capabilities
compared to the rise and fall of the general market, so
you can (theoretically) tell a good manager or brokerage
by comparing how well their pick do compared to the
overall market. In this way and many others, indices
like the Dow, the AMEX index, the NASDAQ and the S&P 500
are used as benchmarks. Because they represent different
financial sectors of the country, the indices can also
be compared to each other. On any given day, the Dow may
go up and the NASDAQ down, but usually just by a little
bit.
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How to stick to a household budget
and have extra
money for investing
1. Customize your budget with your current needs, wants and future goals in mind.
2. Try to think if your budgeting plan as a "spending" plan rather than penny pitching.
3. Sit down and rationally discuss budget goals and spending limits with your spouse. You are bound to disagree somethere, but it important to take the time to find common ground.
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