What is Stock Index?
Stock index is an indicator of how a particular section of the market is performing. The increase/decrease in the value of these indices gives a fair idea on what the investor sentiments is in that particular section.
Stock indexes can also be diverse like S&P 500 which consists of US’ 500 most traded stocks. Weighted average price of the stocks under the index is considered as the price of the index.
An increase in the value of an index need not mean that all the companies under the index is performing well and vice versa. It has to be used just as an indicative value to understand the market movement.
” By periodically investing in an index fund, the know-nothing investors can actually outperform most investment professional. ” – Warren Buffett.