Index

The S&P 500 is an index: roughly five hundred large US companies, selected by a committee against published criteria. The Dow Jones Industrial Average is another, with thirty companies and a much older and stranger way of weighting them. The Nasdaq Composite is a third. Each one is a list, plus a rule for turning that list into a single number.

An index is not something anybody can own. It is a measurement, in the way a temperature is a measurement. What can be owned is a fund built to hold what the index lists, which is what an index fund or an index-tracking ETF does, and the fund and the index are two different things with two different costs.

How the list is weighted decides what the number is actually telling you. Most major indexes weight by market cap, so the largest companies move the number far more than the smallest ones do. A handful of very large companies can account for most of an index's movement in a given year while hundreds of its members go the other way.