An index measures the performance of a group of securities or financial markets.

Indexes are composites that measure price changes using a standardized unit of measurement to track the overall direction of the collection of securities or financial markets. Indexes may be broad and encompass a wide variety of a country’s corporations or focus on smaller sectors, such as technology or financials.

Indexes tend to be grouped by the market capitalization of the companies measured. Market capitalization is determined by multiplying the price of a stock by the number of shares outstanding. Market capitalization sizes are classified as small, mid, large, or mega. The criteria vary from index to index but follow the same general guidelines.

Mega cap stocks may be the fifty largest companies in a broad index or have a market capitalization of at least $200 billion. Large-cap stocks typically have a market cap of at least $10 billion, mid-cap stocks range between $2 billion and $10 billion, and small-cap stocks are between $250 million and $2 billion.

Indexes are essentially a large portfolio of assets that cannot be invested in directly. Indexes provide a relative benchmark in which to measure current performance against past performance or a portfolio manager’s performance. Indexes are occasionally rebalanced, and some companies are added to the index while others are removed.

S&P 500 Index

The S&P 500, or Standard and Poor’s 500 index, comprises the 500 largest companies in the United States based on market capitalization and represents multiple major sectors within the U.S. economy.

The S&P 500 is commonly used as the benchmark for the US stock market as a whole due to the amount of diverse, large-cap companies within the index. The index is rebalanced quarterly.

Dow Jones Industrial Average

The Dow Jones Industrial Average (DJIA) consists of 30 companies and is often referred to as the Dow 30. All of the Dow’s companies are considered “blue chip” stocks and are the largest and most successful corporations in America.

Although the S&P 500 gives a more comprehensive view of the overall economy in the United States, the Dow Jones is often quoted as the standard for the stock market. The index is price-weighted, where higher-priced securities weigh more heavily and is rebalanced every two years.

NASDAQ Composite

The Nasdaq composite is an index that includes more than 2,500 companies and, like the S&P 500, is a market capitalization-weighted index. The Nasdaq encompasses a broad range of companies, including international corporations, American depository receipts, REITs, and more.

The Nasdaq is most heavily weighted in technology, with more than 50% of the companies tech-based, and includes many other sectors, such as healthcare, financials, consumer services, and others. The Nasdaq is often listed with the S&P 500 and Dow Jones as benchmarks for the American stock market, specifically as it pertains to technology. The index is rebalanced semi-annually.

Russell 2000 Index

The Russell 2000 index consists of approximately 2,000 small-cap companies taken from the bottom two-thirds of the Russell 3000 index, which is made up of nearly every publicly traded company in the United States. Investors use the Russell 2000 as a benchmark for the performance of small-cap companies.

Unlike the large-cap indexes, the Russell 2000 is weighted by shares outstanding instead of market capitalization. The Russell 2000 primarily focuses on smaller U.S. companies. The index is rebalanced annually.

FTSE 100 Index

The FTSE is the Financial Times Stock Exchange Group. The FTSE oversees multiple indexes, including the Russell in the United States. The FTSE 100 index is a portfolio of stocks comprised of 100 blue-chip companies listed on the London Stock Exchange.

The FTSE 100 is widely used as a benchmark for markets in the United Kingdom. The index is market-cap weighted and rebalanced quarterly.