Financial indices are designed to provide investors with a way to reduce the complexity and increase the comprehensibility of financial markets – and yet, indices themselves are largely misunderstood. Indices are also commonly confused or conflated with index funds. Somewhat ironically, indices enable an abbreviated lexicon that is used without an underpinning of deep understanding. Talk about “the market” or “the markets” almost always refers not to the actual financial market (or markets) in question, but rather to one or more major financial indices – for example, the Dow Jones®, the S&P 500®, the Nasdaq 100® – that measures activity in that market.
This is a paper that seeks to answer questions, including:
- What are financial indices?
- What is the difference between a financial index and an index fund?
- How and why were indices created – and how have they changed?
- What role do indices play in the universe of investing?
Our great hope is that, in answering these questions, important new questions will be raised – and potential answers discussed by consumers as well as leaders in government and the financial industry. For example:
- How are indices and index funds relevant to everyday investors?
- Do financial indices hold some of the keys to Americans’ retirement savings challenges?
- How should index funds be regulated to protect investors’ rights and promote innovation?
Financial indices are designed to provide investors with a way to reduce the complexity and increase the comprehensibility of financial markets – and yet, indices themselves are largely misunderstood. Indices are also commonly confused or conflated with index funds. Somewhat ironically, indices enable an abbreviated lexicon that is used without an underpinning of deep understanding. Talk about “the market” or “the markets” almost always refers not to the actual financial market (or markets) in question, but rather to one or more major financial indices – for example, the Dow Jones®, the S&P 500®, the Nasdaq 100® – that measures activity in that market.
This is a paper that seeks to answer questions, including:
- What are financial indices?
- What is the difference between a financial index and an index fund?
- How and why were indices created – and how have they changed?
- What role do indices play in the universe of investing?
Our great hope is that, in answering these questions, important new questions will be raised – and potential answers discussed by consumers as well as leaders in government and the financial industry. For example:
- How are indices and index funds relevant to everyday investors?
- Do financial indices hold some of the keys to Americans’ retirement savings challenges?
- How should index funds be regulated to protect investors’ rights and promote innovation?