When we were kids, most of us were taught that “The only bad question is the one left unasked.” As a financial advisor, we’ve found that statement to be proven true time and time again. Every day, our clients ask me questions about the markets, taxes, their personal finances, you name it. Over the course of our careers, we have never thought, “That’s a stupid question.” Not once.
That’s because stupid questions simply don’t exist!
Nevertheless, at some point, everyone has a question that they keep to themselves. Maybe because they’re afraid the question is so basic it would be embarrassing to ask. Maybe it’s because they feel they should know the answer already and don’t want to look ignorant.
But when it comes to your finances, there are no bad questions. And for those of us who know the answers, our job is to make sure others know them too. For that reason, we have started a new series of monthly posts called “Questions You Were Afraid to Ask.” Each month, we will look at a common question that many investors have, but feel uncomfortable asking. To start, let’s look at:
Questions You Were Afraid to Ask #1: What’s the Difference Between the Dow, S&P 500, and NASDAQ?
You hear it every day when you turn on the news – some variation of: The Dow closed at 34,000 today. The S&P closed at 4,433. The NASDAQ rose 1.6% as tech shares…
You know all those terms refer to “the stock market.” But what, exactly, do they mean? Why is the Dow always so much higher than the S&P? Does that mean it’s better? And what makes the NASDAQ different from the others?
The good news is that the answers to these questions are really quite simple. We just need to define some terms!
The Dow, S&P 500, and NASDAQ Composite are all indexes. An index tracks the performance of a group of securities, like bonds or – in this case – stocks. Indexes are handy tools because they enable investors to compare current price levels for different segmentsof the market with past ones, so they can measure performance over time. Some indexes track extremely narrow segments of the market, like companies of a specific size or sector. Others are much broader.
What makes the Dow, S&P 500, and NASDAQ different from another is what each index measures. So, let’s take each one at a time.
Dow Jones Industrial Average: This index tracks the performance of 30 of the most prominent companies listed on stock exchanges in America. (As of this writing, think Apple, Coca Cola, and Walmart, among others.) Because it is so narrow, the Dow isn’t always a good indicator of how the overall stock market is doing. But because the companies inside the Dow are so important or well-known, many people have money invested in them. That’s why the media pays so much attention to how the Dow is doing.
S&P 500: This index measures 500 of the largest companies listed on American stock exchanges. (Quick note: A stock exchange is where traders actually buy and sell stocks. The New York Stock Exchange is the biggest and most famous, but there are many exchanges across the world.) Because the S&P 500 tracks so many more companies than the Dow, across a broad range of industries, it is often considered a more reliable snapshot of the overall economy than the Dow.
NASDAQ Composite: This index tracks nearly all the stocks listed on the Nasdaq Stock Exchange and is heavily weighted towards technology companies.
There are plenty of other indices, too. For example, one of the most important is the…
Russell 3000: You don’t hear about the Russell as much as the previous three, but this index represents nearly the entire U.S. stock market. It includes 3,000 of the country’s largest publicly held companies. (There are also Russell 1000 and Russell 2000 indices.)
S&P/TSX Composite: This is the most important index in Canada. It tracks the performance of the 250 largest companies listed on the Toronto Stock Exchange. You can think of it as the Canadian equivalent to the S&P 500.
So now you know why the financial media is always showing different averages for different indices when they talk about “how the stock market did today.” Because each index is measuring something different!
Next month, we’ll talk about why these indices are all priced so differently. (For example, the Dow is always much, much higher than the S&P 500, even though the latter contains over four hundred more companies.) Spoiler: It all comes down to something called weighted average. After that, we’ll move away from stocks and look at other areas of personal finance.
We hope you’ll find these posts interesting, and that some of your questions will get answered. In the meantime, have a great month!
What are you looking forward to the most in retirement? Or if you’re retired, what’s surprised you the most about life in retirement? We’d love to hear about your plans for retirement and/or your experiences as a retiree.
As children, we all learned about the Founding Fathers—those men who either fought for American independence or worked in some other way to achieve it. We learned about names like George Washington, John Adams, Benjamin Franklin, and Thomas Jefferson. As we grew older, their names and stories stayed with us, and it’s to them our minds often turn on Independence Day.
This got us thinking: what about the women of the American Revolution? Surely there were women who fought and labored for independence. What about the Founding Mothers?
Researching this question led us to learn about some very interesting people. So, to celebrate Independence Day, we thought it would be fun to look at four women who championed freedom and liberty in their own special ways.
Hannah White Arnett
It’s easy to think of American independence as being inevitable. But for the people who lived through the Revolution, it was anything but. In fact, the decision whether to join one side or the other was a difficult one. Both patriots (those who favored independence) and loyalists (those who remained loyal to England) probably had good reasons for choosing how they did.
But for Hannah Arnett, the choice was obvious. A native of New Jersey, she left no one in doubt about where she stood. Hannah proved this one day when she heard her husband and a group of other men discussing whether to pledge loyalty to England in exchange for a guarantee of life and property. She burst into the room, calling them cowards and traitors. In the 1700s, this was a tremendous show of bravery. But when her husband, Isaac, ordered her to leave, she did what was unthinkable for most women of the era: threatened to leave him if he chose England over America.
The threat worked. Isaac chose independence, as did the other men.
Margaret Corbin didn’t just urge her husband to fight in the Revolution … she joined him.
It wasn’t uncommon at the time for women to follow their husbands into battle. These women were rarely allowed to fight, but they did perform needed tasks like cooking, washing, and tending to the wounded. But on November 16, 1776, Margaret did even more. She and her husband were stationed at Fort Washington in Manhattan. John’s assignment was to fire one of the two available cannons, but when a German mercenary took his life, Margaret knew what she had to do. Despite seeing her husband die, Margaret took his place in an exposed position with only the cannon itself to protect her.
Soon a bullet struck her arm … but she kept firing. Next, she took a bullet to the chest … but kept firing. Even a shot to her jaw couldn’t stop her from manning her husband’s post.
Margaret never completely recovered from her wounds, but the government took notice of her heroism. In 1779, she became the first woman in United States history to receive a military pension.
Catharine Moore Barry
Every schoolchild knows the story of Paul Revere’s ride. But he was far from the only American to warn his countrymen that the British were coming.
It was 1781, and the British Army had conquered most of South Carolina. They decided to finish the job by taking General Daniel Morgan’s Continental Army by surprise. But Catharine Barry had other ideas. Being familiar with the local terrain, she picked her way cross-country by using difficult and uncertain trails to warn Morgan of the British approach. This gave Morgan enough time to prepare. The result was a stunning victory for the Americans in the Battle of Cowpens, which helped end the British occupation of South Carolina.
Mercy Otis Warren
America in the 19th century was full of women with brilliant minds. Unfortunately, the culture of the time meant most women were either barred from sharing their genius or lacked the education to realize their own potential. Neither was the case for Warren. As a girl, her parents allowed her to study with her older brother. She had such a natural talent for writing that when John Adams met her, he said, “God Almighty has entrusted her with the Powers for the good of the World, which … he bestows on few of the human race. Instead of being a fault to use them, it would be criminal [for her] to neglect them.”
Warren took Adams at his word. Throughout the war, she wrote to both John and Samuel Adams, as well as John Hancock, Thomas Jefferson, and even George Washington, and became a kind of unofficial advisor to each. She also wrote poems and plays, most of them political, each designed to promote the ideals of liberty and independence. In short, Mercy Otis Warren became one of the preeminent voices of her day, and likely did much to shape the national discussion. She even went on to write the first history of the Revolutionary War. Thomas Jefferson bought several copies.
It is easy to look back and see American independence as being inevitable. It was anything but. It was bought and paid for through the bravery, commitment, and sacrifice of both men and women. This Independence Day let’s do our best to remember not only the men who shaped our nation’s history, but the women as well.
On behalf of all of us here at Minich MacGregor Wealth Managment, have a happy Independence Day!