Stock Market

By Deborah Nayrocker

Dear Deborah: What is the Dow Jones Industrial Average? – A Reader

Answer: The “Dow,” also abbreviated as DJIA, is one of many stock market indexes.

If you hear someone say, “The market was up 20 points today,” it’s likely that person is referring to the Dow Jones Industrial Average index. As is customary, it is the most quoted index in the news.

This index is comprised of 30 industrial companies. Since the companies are quite large and well known among the industries they are more commonly referred to as “blue chips.”

The Dow began in 1896 with 12 companies. Only General Electric remains of the original 12. Some companies that have been added in the last two decades are Cisco Systems, Hewlett-Packard, Johnson & Johnson, Wal-Mart, Home Depot, Intel Corp., Microsoft, Pfizer Inc. and Verizon.

The DJIA doesn’t statistically represent the entire stock market. It doesn’t include transportation or utilities companies, according to The Consumer Reports Money Book. Additionally, the service sector is underweighted. Investors who want to compare their investment performance against a much wider market usually choose a broader index, typically the Standard & Poor’s 500. This index is made up of 500 stocks, also comprised of companies that are large and well-established.

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Deborah Nayrocker is an author and columnist. She is the award-winning author of The Art of Debt-Free Living and Living a Balanced Financial Life.

Copyright by Deborah J. Nayrocker. All rights reserved.

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