What is the Dow Jones Industrial Average?
The Dow Jones Industrial Average – or the Dow – is one of the most popular stock indexes in the world. It was created in 1896 by Charles Dow and Edward Jones. It is a way to measure the stock market as a whole by looking at a group of stocks, instead of individual stocks. So when people say the stock market has gone up or down, they usually mean the Dow has gone up or down in value.
What are the stocks in the Dow?
The Dow consists of 30 blue chip stocks, called the Dow’s constituents or the Dow’s components, which are good representatives of different industries like financial services, information technology, entertainment, retail, telecommunications, health care, etc. Some of the Dow’s stocks are Apple, Disney, McDonald’s, Nike, American Express, Walmart, and Verizon.
What does the Dow’s value represent? Is it a dollar amount?
The Dow’s value is measured in points. When the Dow was created in 1896, its value was 100 points. As of September 2020, the Dow has grown to almost 30,000 points.
The point value of the Dow is calculated using a price-weighted formula. This means that each stock’s weight in the index is decided by the market price of the stock. For example, if stock A’s price is $100, and stock B’s price is $200, then stock B would have double the weight – or power to change the value of the Dow – as stock A, because it has double the price.
Can the Dow constituents change, or do they stay the same?
The Dow was created to correctly represent the stock market as a whole. So its components do change from time to time depending on the changes in the stock market.
If the Dow goes up or down, does it mean all its stocks have gone up or down in price?
No. The change in the Dow’s value is a combined effect of the changes in the price of all its stocks.
What are some other popular stock indexes?
Some other popular stock indexes include the S&P 500, NASDAQ, and FTSE. But those are topics for another time…
Podcast: What is the Dow Jones Industrial Average (DJIA) or the Dow 30
Fun, informative and concise episodes by a 10-year old, breaking down complex financial concepts in a way that kids and beginners can understand. Episodes cover personal finance topics like saving, investing, banking, credit cards, insurance, real estate, mortgage, retirement planning, 401k, stocks, bonds, income tax, and more, and are in the form of a conversation between a cowboy (a finance novice) and his friend, a stock broker. Making finance your friend, only at Easy Peasy Finance.
A little bit about me: I have been fascinated with the world of personal finance since I was 6! I love to read personal finance books, and keep myself updated on the latest by reading various personal finance magazines. My friends often ask me questions about finance because they find it complex and intimidating. That’s what inspired me to start my YouTube channel called Easy Peasy Finance when I was 8, and this podcast 2 years later.
All you need to know about Dow Jones Industrial Average or DJIA: What is the Dow Jones Industrial Average, What are the stocks in the Dow, What does the Dow’s value represent – is it a dollar amount, Can the Dow constituents / components change or do they stay the same, If the Dow goes up or down does it mean all its stocks have gone up or down in price, What are some other popular stock indexes, and more.
Show notes and transcript at: https://www.easypeasyfinance.com/what-is-the-dow-jones-industrial-average-djia-or-the-dow-30/