https://www.investopedia.com/terms/m/marketindex.asp
A market index is a value published by a financial data company that’s meant to broadly capture the value of some section of a market.
An index, in most stats, economics and finance contexts, is just a representative value of an asset in a set of assets. Indexes are meant to accurately summarise the state of some market by picking out parts of the stock market and producing a value, usually by simply taking the mathematical weighted average. Indexes are created to serve as a simple indicator/benchmark of stock market performance that provide a useful summary at a glance. Note that there are indexes that also cover non-stock assets such as gold, oil, currencies, etc.
To be clear with terminology, you can’t invest in an index, but you can invest in an index fund that mirrors an index such that an increase in the index value will mean a corresponding increase in your balance.
The 9 Major Market Indexes
- S&P 500 captures the top companies participating in the US stock market. It’s the most followed index in the world.
- Dow Jones Industrial Average consists of the 30 largest companies in the US, so basically a subset of the companies in the S&P 500.
- Nasdaq Composite Index consists of 3000+ stocks and is heavily biased towards tech companies.
- MSCI World captures majors stocks across 23 developed countries. This index provides some indication of the worldwide economic health.
- MSCI Emerging Markets captures stocks across 24 emerging market countries, which are developing countries like India, China, etc.
- S&P GSCI Commodity Index captures commodities like oil, precious metals, agricultural produce, livestock, etc.
- Dow Jones Real Estate Index captures the performance of real estate investment trusts (REIT), mainly.
- Dollar Index captures currency purchasing power of the US dollar relative to other major currencies.
- VIX, also called the ‘fear index’, captures the level of fear in the stock market by tracking the price of options.