Standard and Poor

why professionals use the S&P 500 as a benchmark, not the Dow Industrials

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PRACTICAL STOCK INVESTING

the Dow at an all-time high

Yesterday, the Dow Jones Industrial Average reached an all-time high, signalling a recovery of the index past its previous, pre-Great Recession peak.  This is certainly good news psychologically, since the Dow is a very widely recognized name.  And any report that puts the downturn behind us is welcome.  As it happens, I was listening to Bloomberg Radio when the new high-water mark was first achieved.  A Surveillance commentator played down the fact that the S&P 500 had not yet recovered all its recession losses (although it’s close), saying that the use of the S&P over the Dow is “just” a question of “institutional bias.”

That’s simply incorrect.  …hence this post.

what’s wrong with the Dow

There are three reasons professional investors use the S&P 500 to benchmark their performance rather than the Dow:

1.  wider coverage.  The Dow Industrials consist of 30 American…

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