Investors are feeling giddy and that enthusiasm recently pushed the Dow Jones Industrial Average to new heights.  When your teen starts following the stock market, he or she will hear about indexes including the Dow, S&P 500, and Nasdaq Composite.

So what’s an index?

In the simplest terms, an index is a basket of stocks which represents a certain sector of the market. These stocks are basically speaking for a much larger group. For example, want to gauge how retailers are doing? Track a retail index which consists of a certain number of stocks, representing the retail industry as a whole.  Other popular indexes include the U.S. Travel and Leisure Index, Transportation as well as Pharmaceutical. The list goes on…..

When an index rises or falls, you’ll hear market watchers say things like “retailers saw some nice gains today,” or “airline stocks had a rough ride.”

When we talk about the Dow, we are referring to stocks which make up the Dow Jones industrial Average. The index was created in 1896 and currently consists of stocks from 30 major U.S. companies. Movement in these stocks give investors an idea of how the overall market is faring.  Some companies in the Dow include Coca-Cola, Exxon Mobil, The Home Depot and McDonald’s.

Two other well-known indexes are the S&P 500 and Nasdaq.  The S&P 500 (or Standard & Poor’s 500), is made up of 500 companies which trade in the U.S. stock market.  Many investors follow the S&P 500 since it gives a broader overview of the market.  They’ll also follow Nasdaq, which represents many well-known technology companies, to gauge how tech stocks did on a particular day.

If your teen is ready for investing have them focus on an area they are familiar with and research if there is an index which follows that particular industry.

Discuss these basics with your teen and you may very well get a text which reads “OMG! Did U C the DOW today? CRZ! TTYL!

>  Post provided by @ErikaVujnovich