Attack of the Indexes!

by | Jun 13, 2017

There are now more stock indexes than there are stocks!!!!! What is a stock index? It is a rules based method of grouping together stocks to represent a market or sub-set of a market. Common examples are the S&P 500 and Dow Jones Industrial Average.


Why the proliferation of indexes? It is primarily driven by demand for specialty indexes. Every sector has its own index (e.g. energy, telecommunications) as well as sub-sector (e.g. livestock). Also, many indexes are now various investment strategies repackaged as an index. For example, you can invest in quality small cap stocks through the quality small cap stock index fund. Or low volatility international stocks. Or high dividend paying stocks in emerging market countries.

As the number of indexes has risen, so have the dollars flowing into index tracking mutual funds and ETFs.


The proliferation of indexes increases choice but also can create confusion. Be careful out there among all the indexes.


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