Dave Says: The Lowdown on the Dow Jones

Dear Dave,

We hear all kinds of numbers relating to the economy every night on the news. To be honest, I have no idea what most of them mean. Can you tell me more about the Dow Jones Industrial Average?

- Ken

Dear Ken,

The Dow is an index of the stocks of 30 selected companies. We’re talking about outfits like Wal-Mart, Coca-Cola, and Nike – some of the big boys. The percentage that the stock prices of these companies rise or fall as a group, on any given day, is the Dow Jones Industrial Average for that day.

Technically, this index is not a good representative of what the stock market is doing because it only takes into account 30 companies. The S&P is a much better measure of what the market is doing because it represents the stock-price activity of 500 companies.

Let’s say you’re watching the news, and a reporter tells you the market just went down 300 points and it was at 10,000. That represents only a three percent change, and that’s not big news – regardless of what some of the “experts” say.

Great question, Ken!

- Dave