Indexes & Benchmarks
S&P 500, Dow, Nasdaq — what they measure
When the news says 'the market was up 1% today,' they don't mean every stock moved 1%. They mean a single, specific basket of stocks called an index moved 1%. The S&P 500 is the most important of these baskets, and the number it produces is the yardstick against which every dollar of investment performance is measured — including yours, whether or not you ever explicitly chose it as your benchmark.
An index is a recipe. The committee that runs the S&P 500 (the S&P U.S.
Index Committee) chooses which 500 companies are in it, weights each one by its market capitalization, and publishes the resulting average. Apple, with a $3 trillion market cap, weighs much more in the index than United Airlines with a $15 billion market cap. When Apple goes up 1% and United stays flat, the index rises a little; when Apple drops 5%, the index drops a lot.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 7 sections and ends with 5 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1The major U.S. equity indexes — and why each exists
- 2Why benchmarks matter — keeping honest score
- 3How the major indexes have performed (10-year total return — reference)
- 4The market-cap weighting math (and why it matters)
- 5The Buffett bet — Berkshire vs hedge funds, 2008-2017
- 6Where to see this on the platform
- 7Summary