Dow Jones Industrial average (DJIA) is among the most popular stock market indices in the world. It is a group of 30 leading publicly traded companies and used as an indicator of the general prosperity of the stock market in the US. The Dow Jones Industrial Average is a concept that one should know in case they are interested in the field of finance or trading in a stock market. This can guide you to make more investment decisions whether you are a beginner or an experienced investor since you will know how the DJIA works.
Discussing the essential aspects of the Dow Jones Industrial Average
Explaining what is the Dow Jones industrial average
Dow Jones Industrial average (DJIA) is a securities market index which comprises 30 publicly traded big companies in the US. Charles Dow and Edward Jones had formed it in 1896 to provide investors with a picture of the performance of the biggest industrial companies in the nation. These 30 businesses are chosen depending on their size, line of business and economic importance. DJIA has been perceived as a mirror of the general wellbeing of the US economy.
How is the Dow Jones industrial average calculated?
Dow Jones Industrial average is computed by weighting the prices. It implies that the stock price of all the 30 firms that are included in the index is applied in determining its effect on the DJIA.
The calculation is done as follows:
- In the case of each company, the stock price is summed up.
- The amount is multiplied by a divisor that is adapted to the stock splits and rebalancing of the composition of the index.
- The outcome provides the value of the Dow.
Such a technique of calculation gives the stock price of bigger companies in the DJIA more power to the index than the smaller companies.
How often does the Dow Jones industrial average adjust?
The Dow Jones industrial average is not a fixed line which can vary with time. The elements of the DJIA are reconsidered and changed occasionally, in order to measure the changes in the market and the economy.
Key points to remember:
- The DJIA is periodically (typically annually) reviewed to make sure that the index still is based on the most significant businesses in the market.
- In case a company does not reflect the economy and has done poorly, it can be taken off the index, and another company more relevant can be added.
How to invest in the Dow Jones industrial average
The Dow Jones Industrial Average (道瓊工業平均指數) is often an awesome investment in order to have exposure to an excellent choice of iconic firms. One can invest in DJIA a couple of ways:
Methods for investing:
- Buy individual stocks: You will have the chance to directly purchase from 30 companies constituting the DJIA. Nonetheless, it takes much research and management.
- Exchange traded funds (ETFs): The easier method to invest in the DJIA is to invest in ETFs which track the actions of the overall index.
- Mutual funds: There are also mutual funds which track the DJIA, a less aggressive way of investing in the index.
Tips for investing:
- Diversify: It is advisable even during an investment at the DJIA to have a diversified portfolio.
- Monitor the market: Observing the work of the DJIA and separate stocks, you will be able to make the right decision.
Conclusion
The Dow Jones Industrial average is a very important index to any person interested in the stock market. As an amateur or a seasoned investor, tracking DJIA can assist you to make better decisions when investing in the stock market. Through investing in the Dow Jones Industrial Average, you will enjoy accessibility to some of the largest and most significant companies, all over the world which will provide you with a chance to grow in the long term.