Investment Terms

The Nasdaq is a global electronic marketplace for buying and selling securities. Nasdaq was created by the National Association of Securities Dealers to enable investors trade securities on a computerized, speedy and transparent system. It commenced operations on February 8, 1971. The term, “Nasdaq” is also used to refer to the Nasdaq Composite, which is an index of more than 3,000 stocks listed on the Nasdaq exchange. The stocks include biotech giants such as Apple, Google, Microsoft, Oracle, Amazon, and Intel.
Nasdaq officially separated from the NASD and began to operate as a national securities exchange in 2006. In 2007, it combined with the Scandinavian exchange group OMX to become the Nasdaq OMX group, which is the largest exchange company globally, powering 1 in 10 of the world’s securities transactions.
The Nasdaq OMX has its headquarters in New York, where it operates 25 markets which include primarily equities, as well as options, such as fixed income, derivatives and commodities. It also operates one clearinghouse and five central securities depositories in the United States and Europe. The Nasdaq's cutting-edge trading technology is used by 70 exchanges in 50 countries. It is listed on the Nasdaq under the symbol NDAQ and has been part of the S&P 500 since 2008.
The Nasdaq computerized trading system was initially devised as an alternative to the “specialist” system, which had been the prevalent model for almost a century. The rapid evolution of technology has made the Nasdaq’s electronic trading model the standard for markets worldwide.
The index crossed the 1,000 mark for the first time in July 1995, soared in the following years and peaked at over 4,500 in March 2000, before slumping almost 80% by October 2002 in the subsequent correction.
Nasdaq achieved its highest-ever close on August 29, 2018, when its index peaked at 8109.69 points. In 2018, it was announced that the Nasdaq was planning to introduce cryptocurrency futures in conjunction with a prominent investment firm.

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The Nasdaq is a global electronic marketplace for buying and selling securities. Nasdaq was created by the National Association of Securities Dealers to enable investors trade securities on a computerized, speedy and transparent system. It commenced operations on February 8, 1971. The term, “Nasdaq” is also used to refer to the Nasdaq Composite, which is an index of more than 3,000 stocks listed on the Nasdaq exchange. The stocks include biotech giants such as Apple, Google, Microsoft, Oracle, Amazon, and Intel.Nasdaq officially separated from the NASD and began to operate as a national securities exchange in 2006. In 2007, it combined with the Scandinavian exchange group OMX to become the Nasdaq OMX group, which is the largest exchange company globally, powering 1 in 10 of the world’s securities transactions.The Nasdaq OMX has its headquarters in New York, where it operates 25 markets which include primarily equities, as well as options, such as fixed income, derivatives and commodities. It also operates one clearinghouse and five central securities depositories in the United States and Europe. The Nasdaq's cutting-edge trading technology is used by 70 exchanges in 50 countries. It is listed on the Nasdaq under the symbol NDAQ and has been part of the S&P 500 since 2008.The Nasdaq computerized trading system was initially devised as an alternative to the “specialist” system, which had been the prevalent model for almost a century. The rapid evolution of technology has made the Nasdaq’s electronic trading model the standard for markets worldwide.The index crossed the 1,000 mark for the first time in July 1995, soared in the following years and peaked at over 4,500 in March 2000, before slumping almost 80% by October 2002 in the subsequent correction.Nasdaq achieved its highest-ever close on August 29, 2018, when its index peaked at 8109.69 points. In 2018, it was announced that the Nasdaq was planning to introduce cryptocurrency futures in conjunction with a prominent investment firm.

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A tariff is a tax imposed by one country on the goods and services imported from another country.
Tariffs are used to restrict imports by increasing the price of goods and services purchased from another country, making them less attractive to domestic consumers. There are two types of tariffs: A specific tariff is levied as a fixed fee based on the type of item, such as a tariff on a car. An ad-valorem tariff is levied based on the item's value, such as 10% of the value of the vehicle.
Governments may impose tariffs to raise revenue or to protect domestic industries —especially nascent ones— from foreign competition. By making foreign-produced goods more expensive, tariffs can make domestically produced alternatives seem more attractive. Governments that use tariffs to benefit particular industries often do so to protect companies and jobs. Tariffs can also be used as an extension of foreign policy: Imposing tariffs on a trading partner's main exports is a way to exert economic leverage.
Tariffs can however have unintended side effects. They can make domestic industries less efficient and innovative by reducing competition. They can hurt domestic consumers, since a lack of competition tends to push up prices. Tarrifs can also generate tensions by favoring certain industries, or geographic regions, over others. For example, tariffs designed to help manufacturers in cities may hurt consumers in rural areas who do not benefit from the policy and are likely to pay more for manufactured goods. Finally, an attempt to pressure a rival country by using tariffs can devolve into an unproductive cycle of retaliation, commonly known as a trade war.

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A tariff is a tax imposed by one country on the goods and services imported from another country. Tariffs are used to restrict imports by increasing the price of goods and services purchased from another country, making them less attractive to domestic consumers. There are two types of tariffs: A specific tariff is levied as a fixed fee based on the type of item, such as a tariff on a car. An ad-valorem tariff is levied based on the item's value, such as 10% of the value of the vehicle.Governments may impose tariffs to raise revenue or to protect domestic industries —especially nascent ones— from foreign competition. By making foreign-produced goods more expensive, tariffs can make domestically produced alternatives seem more attractive. Governments that use tariffs to benefit particular industries often do so to protect companies and jobs. Tariffs can also be used as an extension of foreign policy: Imposing tariffs on a trading partner's main exports is a way to exert economic leverage.Tariffs can however have unintended side effects. They can make domestic industries less efficient and innovative by reducing competition. They can hurt domestic consumers, since a lack of competition tends to push up prices. Tarrifs can also generate tensions by favoring certain industries, or geographic regions, over others. For example, tariffs designed to help manufacturers in cities may hurt consumers in rural areas who do not benefit from the policy and are likely to pay more for manufactured goods. Finally, an attempt to pressure a rival country by using tariffs can devolve into an unproductive cycle of retaliation, commonly known as a trade war.

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Tax efficiency is an attempt to minimize tax liability when given many different financial decisions. A financial decision is said to be tax-efficient if the tax outcome is lower than an alternative financial structure that achieves the same end.
Tax efficiency refers to structuring an investment or a financial plan so that the least possible taxation occurs.
A taxpayer can open income-producing accounts that are tax-deferred, such as an Individual Retirement Account (IRA) or a 401(k) plan.
Tax-efficient mutual funds are taxed at a lower rate relative to other mutual funds.
A bond investor can opt for municipal bonds, which are exempt from federal taxes.
Tax efficiency refers to structuring an investment so that it receives the least possible taxation. There are a variety of ways to obtain tax efficiency when investing in the public markets.
A taxpayer can open an income-producing account whereby the investment income is tax-deferred, such as an Individual Retirement Account (IRA), a 401(k) plan, or an annuity. Any dividends or capital gains earned from the investments are automatically reinvested in the account, which continues to grow tax-deferred until withdrawals are made.1
With a traditional retirement account, the investor gets tax savings by reducing the current year's income by the amount of funds placed in the account. In other words, there's an upfront tax benefit, but when the funds are withdrawn in retirement, the investor must pay taxes on the distribution. On the other hand, Roth IRAs do not provide the upfront tax break from depositing the funds. However, Roth IRAs allow the investor to withdraw the funds tax-free in retirement.
In 2019, changes were made to the rules regarding retirement accounts with the passage of the SECURE Act by the U.S. Congress. Below are a few of those changes that take effect in 2020.
If you have an annuity in your retirement plan, the new ruling allows the annuity to be portable. So, if you leave your job to take another job at another company, your 401(k) annuity can be rolled over into the plan at your new company. However, the new law removed some of the legal liabilities that annuity providers previously faced by reducing the ability of account holders to sue them if the provider fails to honor the annuity payments.
For those with tax-planning strategies that include leaving money to beneficiaries, the new ruling may impact you too. The SECURE Act removed the stretch provision, which allowed non-spousal beneficiaries to take only the required minimum distributions from an inherited IRA. Starting in 2020, non-spousal beneficiaries that inherit an IRA must withdraw all of the funds within ten years following the death of the owner.
The good news is that investors of any age can now add money to a traditional IRA and get a tax deduction since the Act removed the age limitation for IRA contributions. Also, required minimum distributions don't need to begin until age 72–versus age 70 1/2 previously. As a result, it's important for investors to consult a financial professional to review the new changes to retirement accounts and determine whether the changes impact your tax strategy.
Investing in a tax-efficient mutual fund, especially for taxpayers that don’t have a tax-deferred or tax-free account, is another way to reduce tax liability. A tax-efficient mutual fund is taxed at a lower rate relative to other mutual funds. These funds typically generate lower rates of returns through dividends or capital gains compared to the average mutual fund. Small-cap stock funds and funds that are passively-managed, such as index funds and exchange-traded funds (ETFs), are good examples of mutual funds that generate little to no interest income or dividends.
A taxpayer can achieve tax efficiency by holding stocks for more than a year, which will subject the investor to the more favorable long-term capital gains rate, rather than the ordinary income tax rate that is applied to investments held for less than a year. In addition, offsetting taxable capital gains with current or past capital losses can reduce the amount of investment profit that is taxed.
A bond investor can opt for municipal bonds over corporate bonds, given that the former is exempt from taxes at the federal level. If the investor purchases a muni bond issued in his or her state of residency, the coupon payments made on the bond may also be exempt from state taxes.
For estate planning purposes, the irrevocable trust is useful for people who want to gain estate tax efficiency. When an individual holds assets into this type of trust, s/he surrenders incidents of ownership, because s/he cannot revoke the trust and take back the resources. As a result, when an irrevocable trust is funded, the property owner is, in effect, removing the assets from his or her taxable estate. Generation-skipping trusts, qualified personal residence trusts, grantor retained annuity trusts (GRAT), charitable lead trusts, and charitable remainder trusts are some of the irrevocable trusts that are used for estate tax efficiency purposes. On the other hand, a revocable trust is not tax-efficient because the trust can be revoked and, thus, assets held in it are still part of the estate for tax purposes.
An irrevocable trust is a type of trust where its terms cannot be modified, amended or terminated without the permission of the grantor's named beneficiary or beneficiaries. The grantor, having effectively transferred all ownership of assets into the trust, legally removes all of their rights of ownership to the assets and the trust.
This is in contrast to a revocable trust, which allows the grantor to modify the trust, but thus loses certain benefits such as creditor protection.
The main reasons for setting up an irrevocable trust are for estate and tax considerations. The benefit of this type of trust for estate assets is that it removes all incidents of ownership, effectively removing the trust's assets from the grantor's taxable estate. It also relieves the grantor of the tax liability on the income the assets generate.
While the tax rules vary between jurisdictions, in most cases, the grantor can't receive these benefits if they are the trustee of the trust. The assets held in the trust can include — but are not limited to, a business — investment assets, cash, and life insurance policies.
Irrevocable trusts are especially useful to individuals who work in professions that may make them vulnerable to lawsuits, such as doctors or attorneys. Once property is transferred to such a trust it is owned by the trust for the benefit of the named beneficiaries. Therefore it is safe from legal judgments and creditors, as the trust will not be a party to any lawsuit.
A financial plan is a comprehensive statement of an individual's long-term objectives for security and well-being and a detailed savings and investing strategy for achieving those objectives. A financial plan may be created independently or with the help of a certified financial planner.
In either case, it begins with a thorough evaluation of the individual's current financial state and future expectations.
The core of a financial plan is a person's clearly defined goals. They may include funding a college education for the children, buying a larger home, starting a business, retiring on time, or leaving a legacy.
Financial plans don't have a set template. A licensed financial planner will be able to create one that fits you and your expectations. It may prompt you to make changes in the short-term that will help ensure a smooth transition through life's financial phases.
Net worth is the value the assets a person or corporation owns, minus the liabilities they owe. It is an important metric to gauge a company's health and it provides a snapshot of the firm's current financial position.
Positive and increasing net worth indicates good financial health while decreasing net worth is cause for concern as it might signal a decrease in assets relative to liabilities.
One way to improve net worth is to either reduce liabilities while assets stay constant or rise. You can also increase assets while liabilities either stay constant or fall.
Net worth is a quantitative concept that measures the value of an entity and can apply to individuals, corporations, sectors, and even countries.
Net worth provides a snapshot of an entity's current financial position.
In business, net worth is also known as book value or shareholders' equity. The balance sheet is also known as a net worth statement.
People with substantial net worth are known as high-net-worth individuals.
A consistently profitable company will have a rising net worth or book value as long as these earnings are not fully distributed to shareholders as dividends. For a public company, a rising book value will often be accompanied by an increase in the value of the company's stock price.
An individual's net worth is simply the value that is left after subtracting liabilities from assets. Examples of liabilities (debt) include mortgages, credit card balances, student loans, and car loans. An individual's assets include checking and savings account balances, the value of securities (e.g., stocks or bonds), real property value, the market value of an automobile, et al. In other words, whatever is left after selling all assets and paying off personal debt is the net worth. Note that the value of personal net worth includes the current market value of assets and the current debt costs.
People with a substantial net worth are known as high net worth individuals, and form the prime market

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Tax efficiency is an attempt to minimize tax liability when given many different financial decisions. A financial decision is said to be tax-efficient if the tax outcome is lower than an alternative financial structure that achieves the same end.Tax efficiency refers to structuring an investment or a financial plan so that the least possible taxation occurs.A taxpayer can open income-producing accounts that are tax-deferred, such as an Individual Retirement Account (IRA) or a 401(k) plan.Tax-efficient mutual funds are taxed at a lower rate relative to other mutual funds.A bond investor can opt for municipal bonds, which are exempt from federal taxes.Tax efficiency refers to structuring an investment so that it receives the least possible taxation. There are a variety of ways to obtain tax efficiency when investing in the public markets.A taxpayer can open an income-producing account whereby the investment income is tax-deferred, such as an Individual Retirement Account (IRA), a 401(k) plan, or an annuity. Any dividends or capital gains earned from the investments are automatically reinvested in the account, which continues to grow tax-deferred until withdrawals are made.1With a traditional retirement account, the investor gets tax savings by reducing the current year's income by the amount of funds placed in the account. In other words, there's an upfront tax benefit, but when the funds are withdrawn in retirement, the investor must pay taxes on the distribution. On the other hand, Roth IRAs do not provide the upfront tax break from depositing the funds. However, Roth IRAs allow the investor to withdraw the funds tax-free in retirement.In 2019, changes were made to the rules regarding retirement accounts with the passage of the SECURE Act by the U.S. Congress. Below are a few of those changes that take effect in 2020.If you have an annuity in your retirement plan, the new ruling allows the annuity to be portable. So, if you leave your job to take another job at another company, your 401(k) annuity can be rolled over into the plan at your new company. However, the new law removed some of the legal liabilities that annuity providers previously faced by reducing the ability of account holders to sue them if the provider fails to honor the annuity payments.For those with tax-planning strategies that include leaving money to beneficiaries, the new ruling may impact you too. The SECURE Act removed the stretch provision, which allowed non-spousal beneficiaries to take only the required minimum distributions from an inherited IRA. Starting in 2020, non-spousal beneficiaries that inherit an IRA must withdraw all of the funds within ten years following the death of the owner.The good news is that investors of any age can now add money to a traditional IRA and get a tax deduction since the Act removed the age limitation for IRA contributions. Also, required minimum distributions don't need to begin until age 72–versus age 70 1/2 previously. As a result, it's important for investors to consult a financial professional to review the new changes to retirement accounts and determine whether the changes impact your tax strategy.Investing in a tax-efficient mutual fund, especially for taxpayers that don’t have a tax-deferred or tax-free account, is another way to reduce tax liability. A tax-efficient mutual fund is taxed at a lower rate relative to other mutual funds. These funds typically generate lower rates of returns through dividends or capital gains compared to the average mutual fund. Small-cap stock funds and funds that are passively-managed, such as index funds and exchange-traded funds (ETFs), are good examples of mutual funds that generate little to no interest income or dividends.A taxpayer can achieve tax efficiency by holding stocks for more than a year, which will subject the investor to the more favorable long-term capital gains rate, rather than the ordinary income tax rate that is applied to investments held for less than a year. In addition, offsetting taxable capital gains with current or past capital losses can reduce the amount of investment profit that is taxed.A bond investor can opt for municipal bonds over corporate bonds, given that the former is exempt from taxes at the federal level. If the investor purchases a muni bond issued in his or her state of residency, the coupon payments made on the bond may also be exempt from state taxes.For estate planning purposes, the irrevocable trust is useful for people who want to gain estate tax efficiency. When an individual holds assets into this type of trust, s/he surrenders incidents of ownership, because s/he cannot revoke the trust and take back the resources. As a result, when an irrevocable trust is funded, the property owner is, in effect, removing the assets from his or her taxable estate. Generation-skipping trusts, qualified personal residence trusts, grantor retained annuity trusts (GRAT), charitable lead trusts, and charitable remainder trusts are some of the irrevocable trusts that are used for estate tax efficiency purposes. On the other hand, a revocable trust is not tax-efficient because the trust can be revoked and, thus, assets held in it are still part of the estate for tax purposes.An irrevocable trust is a type of trust where its terms cannot be modified, amended or terminated without the permission of the grantor's named beneficiary or beneficiaries. The grantor, having effectively transferred all ownership of assets into the trust, legally removes all of their rights of ownership to the assets and the trust.This is in contrast to a revocable trust, which allows the grantor to modify the trust, but thus loses certain benefits such as creditor protection.The main reasons for setting up an irrevocable trust are for estate and tax considerations. The benefit of this type of trust for estate assets is that it removes all incidents of ownership, effectively removing the trust's assets from the grantor's taxable estate. It also relieves the grantor of the tax liability on the income the assets generate. While the tax rules vary between jurisdictions, in most cases, the grantor can't receive these benefits if they are the trustee of the trust. The assets held in the trust can include — but are not limited to, a business — investment assets, cash, and life insurance policies.Irrevocable trusts are especially useful to individuals who work in professions that may make them vulnerable to lawsuits, such as doctors or attorneys. Once property is transferred to such a trust it is owned by the trust for the benefit of the named beneficiaries. Therefore it is safe from legal judgments and creditors, as the trust will not be a party to any lawsuit.A financial plan is a comprehensive statement of an individual's long-term objectives for security and well-being and a detailed savings and investing strategy for achieving those objectives. A financial plan may be created independently or with the help of a certified financial planner.In either case, it begins with a thorough evaluation of the individual's current financial state and future expectations.The core of a financial plan is a person's clearly defined goals. They may include funding a college education for the children, buying a larger home, starting a business, retiring on time, or leaving a legacy.Financial plans don't have a set template. A licensed financial planner will be able to create one that fits you and your expectations. It may prompt you to make changes in the short-term that will help ensure a smooth transition through life's financial phases.Net worth is the value the assets a person or corporation owns, minus the liabilities they owe. It is an important metric to gauge a company's health and it provides a snapshot of the firm's current financial position.Positive and increasing net worth indicates good financial health while decreasing net worth is cause for concern as it might signal a decrease in assets relative to liabilities.One way to improve net worth is to either reduce liabilities while assets stay constant or rise. You can also increase assets while liabilities either stay constant or fall.Net worth is a quantitative concept that measures the value of an entity and can apply to individuals, corporations, sectors, and even countries. Net worth provides a snapshot of an entity's current financial position.In business, net worth is also known as book value or shareholders' equity. The balance sheet is also known as a net worth statement.People with substantial net worth are known as high-net-worth individuals.A consistently profitable company will have a rising net worth or book value as long as these earnings are not fully distributed to shareholders as dividends. For a public company, a rising book value will often be accompanied by an increase in the value of the company's stock price.An individual's net worth is simply the value that is left after subtracting liabilities from assets. Examples of liabilities (debt) include mortgages, credit card balances, student loans, and car loans. An individual's assets include checking and savings account balances, the value of securities (e.g., stocks or bonds), real property value, the market value of an automobile, et al. In other words, whatever is left after selling all assets and paying off personal debt is the net worth. Note that the value of personal net worth includes the current market value of assets and the current debt costs.People with a substantial net worth are known as high net worth individuals, and form the prime market

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Monetary policy refers to the actions of a central bank to influence a nation's money supply and economy. Monetary policy is used to influence the employment situation and to manage inflation.
Monetary policy can also be described as a policy adopted by the monetary authority of a country that controls either the interest rate payable on very short-term borrowing or the money supply. It is often targeted at inflation or the interest rate to ensure price stability and general trust in the currency.
Unlike fiscal policy, which relies on taxation, government spending, and government borrowing, monetary policy aims to manipulate the money supply, i.e. 'printing' more money or decreasing the money supply by changing interest rates or removing excess reserves.
Further goals of a monetary policy are usually to contribute to the stability of gross domestic product, to achieve and maintain low unemployment, and to maintain predictable exchange rates with other currencies.
Monetary policy is referred to as being either expansionary or contractionary.
Expansionary policy occurs when a monetary authority uses its tools to stimulate the economy. An expansionary policy maintains short-term interest rates at a lower than usual rate or increases the total supply of money in the economy more rapidly than usual. It is traditionally used to try to combat unemployment in a recession by lowering interest rates in the hope that less expensive credit will entice businesses into expanding.
Contractionary monetary policy maintains short-term interest rates higher than usual, slows the rate of growth in the money supply, or even shrinks it to slow short-term economic growth and lessen inflation. Contractionary monetary policy can lead to increased unemployment and depressed borrowing and spending by consumers and businesses, which can eventually result in an economic recession if implemented too vigorously.

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Monetary policy refers to the actions of a central bank to influence a nation's money supply and economy. Monetary policy is used to influence the employment situation and to manage inflation.Monetary policy can also be described as a policy adopted by the monetary authority of a country that controls either the interest rate payable on very short-term borrowing or the money supply. It is often targeted at inflation or the interest rate to ensure price stability and general trust in the currency.Unlike fiscal policy, which relies on taxation, government spending, and government borrowing, monetary policy aims to manipulate the money supply, i.e. 'printing' more money or decreasing the money supply by changing interest rates or removing excess reserves.Further goals of a monetary policy are usually to contribute to the stability of gross domestic product, to achieve and maintain low unemployment, and to maintain predictable exchange rates with other currencies.Monetary policy is referred to as being either expansionary or contractionary.Expansionary policy occurs when a monetary authority uses its tools to stimulate the economy. An expansionary policy maintains short-term interest rates at a lower than usual rate or increases the total supply of money in the economy more rapidly than usual. It is traditionally used to try to combat unemployment in a recession by lowering interest rates in the hope that less expensive credit will entice businesses into expanding. Contractionary monetary policy maintains short-term interest rates higher than usual, slows the rate of growth in the money supply, or even shrinks it to slow short-term economic growth and lessen inflation. Contractionary monetary policy can lead to increased unemployment and depressed borrowing and spending by consumers and businesses, which can eventually result in an economic recession if implemented too vigorously.

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The Dow Jones Industrial Average

The Dow Jones Industrial Average is an index that tracks 30 large, publicly-owned blue chip companies trading on the New York Stock Exchange and the NASDAQ. The Dow Jones is named after Charles Dow, who created the index back in 1896, along with his business partner Edward Jones.

The Dow is one of the oldest, single most-watched indices in the world. To investors, the Dow Jones is defined as a collection of blue-chip companies with consistently stable earnings.

The Dow Jones Industrial Average is the second oldest U.S. market index after the Dow Jones Transportation Average, which contains 20 transport stocks such as railroad and trucking companies. The Dow Jones Industrial Average was designed to serve as a proxy for the broader U.S. economy.

The performance of industrial companies is typically tied to the growth rate in the economy. As a result, the relationship between the Dow's performance and that of the U.S. economy was cemented. Even today, to many investors, a strong Dow, means a strong economy while a weak-performing Dow means a slowing economy.

The key point about the DJIA is that it is not a weighted arithmetic average, nor does it represent its component companies' market capitalization as does the S&P 500. Rather, it reflects the sum of the price of one share of stock for all the components, divided by the divisor. Thus, a one-point move in any of the component stocks will move the index by an identical number of points.

The most recent large scale change to the Dow took place in 1997 when four of the index's components were replaced. Two years later, in 1999, four more components of the Dow were changed. The most recent change took place on June 26, 2018, when Walgreens Boots Alliance, Inc. replaced General Electric Company.

On March 15, 1933, the Dow experienced its largest one-day percentage gain which happened during the 1930s bear market, totaling 15.34 percent. The Dow gained 8.26 points and closed at 62.10.

While in March 2020, the Dow Jones crashes with back-to-back record down days amid the global coronavirus pandemic. It broke below 20,000 points and fell 3,000 points in a single day.

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The Dow Jones Industrial AverageThe Dow Jones Industrial Average is an index that tracks 30 large, publicly-owned blue chip companies trading on the New York Stock Exchange and the NASDAQ. The Dow Jones is named after Charles Dow, who created the index back in 1896, along with his business partner Edward Jones.The Dow is one of the oldest, single most-watched indices in the world. To investors, the Dow Jones is defined as a collection of blue-chip companies with consistently stable earnings. The Dow Jones Industrial Average is the second oldest U.S. market index after the Dow Jones Transportation Average, which contains 20 transport stocks such as railroad and trucking companies. The Dow Jones Industrial Average was designed to serve as a proxy for the broader U.S. economy.The performance of industrial companies is typically tied to the growth rate in the economy. As a result, the relationship between the Dow's performance and that of the U.S. economy was cemented. Even today, to many investors, a strong Dow, means a strong economy while a weak-performing Dow means a slowing economy.The key point about the DJIA is that it is not a weighted arithmetic average, nor does it represent its component companies' market capitalization as does the S&P 500. Rather, it reflects the sum of the price of one share of stock for all the components, divided by the divisor. Thus, a one-point move in any of the component stocks will move the index by an identical number of points.The most recent large scale change to the Dow took place in 1997 when four of the index's components were replaced. Two years later, in 1999, four more components of the Dow were changed. The most recent change took place on June 26, 2018, when Walgreens Boots Alliance, Inc. replaced General Electric Company.On March 15, 1933, the Dow experienced its largest one-day percentage gain which happened during the 1930s bear market, totaling 15.34 percent. The Dow gained 8.26 points and closed at 62.10.While in March 2020, the Dow Jones crashes with back-to-back record down days amid the global coronavirus pandemic. It broke below 20,000 points and fell 3,000 points in a single day.

Become a supporter of this podcast: https://www.spreaker.com/podcast/investment-terms--4432332/support.