Investing 101

## TL;DR

- A stock market index covers the entire market or a section of the stock market
- The Wilshire 5000 index covers the entire US stock market
- Sector indexes cover specific sectors of the economy
- Indexes are used to measure performance of the market or compare portfolio performance against a benchmark. 

An equity index or a stock market index, is an indicator for the performance of the stock market, or a specific subset. For example, the largest equities in the US stock market are covered and measured by the performance of the S&P 500. 

On the larger end, the Wilshire 5000 index covers the “entire stock market” because it includes all publicly traded companies headquartered in the US. This index can be used to measure the performance of the US stock market. 

On the more specific side, you can find an index which covers a specific sector of assets. For example, the S&P Technology Select Sector is an index which covers all the technology companies covered in the S&P 500 index. Furthermore, additional indexes cover specific sectors of the economy.

These indexes are used as measures to track the performance of the overall economy or a specific sector. However, indexes can also be used by investors to test the performance of their portfolio against a benchmark. E.g. If RJ's portfolio is lagging behind the performance of the S&P 500 index, this is an indicator for him to rebalance and reposition himself. 

Interested in getting involved in the market or a subset of assets without directly exposing yourself to the individual assets? 

Understanding Equity Indices

Stock and Equity

Whether investing in preferred or common stock, these are a few categories of stocks based on their characteristics.

1. Growth stocks - stocks which have faster earnings growth than the market average. Such stocks are risky, because they are frequently startups in the early stages of the business cycle, such as technology companies. However, they provide the potential for high earnings/capital growth.
2. Income stocks - known for consistently paying investors dividends and generally are stable companies such as utility providers. 
3. Value stocks - characterized by having low valuation measures such as price-to-earnings (PE) ratio, these stocks can be growth or income stocks too. Their low PE ratio reflects that they are currently cheap, compared to stocks with a higher PE, and investors buy such stocks in hope that the market will correct and the price will go up. 
4. Blue chip stocks - shares from large, established companies with a solid track record of growth, often paying dividends too (Amazon). 

Types of Stocks

Understanding Equity Indices