What is a stock market index and why should you know about it?

what-is-a-stock-index

It happens very often that people outside the world of finance and investments do not understand many of the concepts that have to be used on a daily basis. This is the reason why until relatively recently it was believed that investing was something reserved for a few, and that not everyone could dedicate themselves to it without having studied enough to understand it.

However, the Internet has democratized all this, and today it is easy to obtain the necessary tools to learn how to invest. First of all, we can read anywhere about finance, and answer questions like the one that brings us here today… What is a stock market index? What is it good for us when it comes to investing?

And secondly, also on the Internet itself, specific places have begun to emerge where you can invest while learning about it, without having to rely on the more traditional channels, where you do not have so much autonomy.

As we are part of this option of reading about investment concepts to learn how to do it and achieve economic profitability someday with our decisions, today we are going to tell you what a stock market index is and in what context you should take it into account.

Let’s go for it!

What exactly is a stock market index? How did the concept come about?

Stock market indexes are indicators of the exact situation of the stock market. Basically it is a data extracted from the analysis of the behavior of all the companies that are part of that index, because from that fluctuation, we can draw conclusions about how things are and thus make decisions about our investment portfolio.

Thus, the index indicates what movements all the companies that are part of it have had in the last day to obtain a conclusion on how the market is doing. The stock market index tells us if it is up, if it is down, and also how certain economic, political or social phenomena have affected the performance of the most relevant companies in each country.

To give you a clearer example, let’s talk about the IBEX35, which is the main stock market index in Spain. It is formed, as can be deduced from its name, by 35 important and profitable companies, whose behavior is summarized in this way so that everyone can have knowledge about it, especially people who invest and are thinking of doing so.

So, when you read in the newspaper, or see in the news, that the IBEX35 has fallen, or has risen, by a certain percentage, then that is precisely what we are talking about: the market value of all these companies has fallen or risen on the day this information is given.

Reasons why it may be useful to know the stock market indexes

The information that a stock market index provides to people who are interested in analyzing everything is enormous. On other occasions we have talked about the importance of analyzing everything well before making a decision about where to invest and how much money to put. Well, the stock market index makes this analysis much easier, giving us a kind of summary of the rise or fall of the market value of the companies that are part of the index, that is to say, the most important ones in each country.

Another interesting point about the stock market indexes is that they make it easier for everyone, without relying so much on prior knowledge and experience. The stock market index of any country is continuously analyzed by experts and managers who want to help their clients continue to achieve profitability. But it is also analyzed by people who are just starting out, or who have not yet done so but are gathering information on how to invest wisely. After some time of such observation, even by inexperienced people, important conclusions can be drawn: where exactly to invest, what to expect from it, how much to invest and how much time to give it.

What are the main stock market indexes in the world?

We have already told you which is the most famous stock market index in Spain, and it is the IBEX35. Although it is Spanish, it is possible to invest in the companies that are part of it wherever you come from, logically. The same goes for the rest of the stock market indexes of other countries or specific sectors such as the outdoor sector with the Artiga Outdoor Brands Index (AOBI), in which a Spanish person can make the decision to invest if he or she sees the need to do so.

And what are some of the most important stock market indexes in the world? Let's take a look at them!

  • Two of the most famous are, of course, from the United States. These are the Dow Jones and the Nasdaq, two of the most important in the country, and also followed by thousands of investors from other parts of the world who pay special attention to the behavior of the market based on the American companies that are part of it.
  • Japan's Nikkei stock index is also famous, and has had a particularly good season over the last two or three years.
  • In England, the stock market index par excellence is the FTSE100, which, as its name suggests, contains the 100 largest capitalization British companies.
  • In other countries such as France there is the CAC40, and in Germany the DAX30. In Italy, there is the FTSE MIB.

In short, we hope we have helped you to gather useful information about what exactly is a stock market index. Also about which companies are part of it and how you can use this financial instrument to draw conclusions and start investing with knowledge. Thank you very much for reading us, see you in the next post!

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