Most every investor is familiar with the most common equity indexes like the Dow Jones Industrial average and the NASDAQ composite, but there are other American indexes such as the S&P 500, Russell and Wilshire indexes that gauge the collective price shifts of lesser known equities. These indexes try to measure the overall performance of the market by taking a sampling of stocks from various industries and tracking the collective price movement of these stocks.
To diversify a portfolio and lessen risk, an investor or business can purchase an equity index fund. An equity index fund invests in the stocks from the index, and will mirror its price movements. For you or your business to gain a sufficient amount of information on equity index investing, it is prudent to study the history of each index. That will determine if there is an equity index annuities or funds in which you want to invest. However, to gain this knowledge there are a few items to consider:
1. Familiarize yourself with all of the major equities indices.
2. Understand the types of equity indexes investment vehicles available.
3. Determine which investment best fits your business investment needs.
Action Steps
The best contacts and resources to help you get it done
Obtain a list of all equity indexes and understand what stocks constitute each equity index
The major and most familiar equity indexes like the Dow Jones and NASDAQ use a smaller and more established sample of companies, while the Wilshire and Russell equity indexes use a broader range of less established stocks to constitute these indexes. For example, the Dow Jones is 30 of the largest and most widely held stocks available but the Russell has either 1,000 or 2,000 much lighter-traded and smaller stocks from various industries.
I recommend: Read the
history of each equity index and determine if you understand how the index operates and the stocks that make up the index. Research the compilation and methods of each of the following equity indexes:
Dow Jones,
NASDAQ,
Russell,
Standard & Poor's, and the
Wilshire equity index.
Research equity index annuities and funds for investment purposes
The type of equity index investment vehicle you choose, if any, will depend on your risk tolerance level and the minimum return on that investment. Before you invest any business or personal funds in these equity index vehicles, you should know the historical return for each and the inherent risks involved.
I recommend: Study the basics of
equity index annuity, and then determine how you can invest in these investment products. Evaluate the index funds from some of the large investment houses like
Charles Schwab,
Fidelity and
Vanguard. These companies offer everything from the traditional index fund to the no-load equity index funds to equity indexed bond funds.
Determine which of these equity index investments is best for your business
Prudent investing depends on what type of risk you or your business can tolerate and the rate of return required.
I recommend: Take a
risk tolerance test to determine your specific risk tolerance limits. Then research the average returns you require for an investment and compare it to the average returns given the
equity indices information.
Tips & Tactics
Helpful advice for making the most of this Guide
- Even though equity index funds are relatively safe investments, you should never invest money that is crucial to business operations. The money you invest, if lost, should not negatively affect the ability to conduct day-to-day operations of the company.
The official source of Equity Indexes is the Equity Indexes page at Business.com
Subscribe to
Try our free weekly WhatWorks newsletter, with business how-to advice
& resources from Work.com.
Related Resources from Business.com
Comments
Is any content on this page inappropriate? To let us know, please 
