Compare and contrast the Dow Iones Industrial Averaae (DllA) and the S&P 500. Decide which one you think is a better barometer for a market portfolio based on one of the following portfolio objectives:
.Growth Income Capital preservation
Both the Dow Jones Industrial Average (DJIA) and the S&P 500 are indexes that track the price movements of a list of stock representatives. This provides investors with a big-picture idea of the current state of the markets in general. The DJIA uses a list of the 30 largest American companies to track stock prices. The S&P 500 uses a list of 500 large publicly traded American stocks. Then, they each calculate their numbers differently. The DJIA is price-weighted, and the S&P 500 stocks are weighted by their market value instead of stock price.
Based on portfolio growth, the S&P 500 is the better barometer. This index uses a larger sample of U.S. stocks, including transportation and utilities unlike the Dow. Due to the diversification of the S&P 500, it includes a large number of smaller companies which can change more dramatically and often. As a result, at times the S&P 500 can be more volatile and see substantial gains in strong markets, such as 2013 and 2019 (S&P Global, n.d.).
S&P Global. (n.d.). The S&P 500 and the dow: S&P dow jones indices. The S&P 500 and The Dow | S&P Dow Jones Indices. Retrieved November 2, 2021 from https://www.spglobal.com/spdji/en/research-insights/index-literacy/the-sp-500-and-the- dow/.
The Wilshire 5000 Total Market Index is also weighted by market capitalization, like the S&P 500. Additionally, this index uses a large sample number of over 6700 American publicly traded companies. Based on portfolio growth, the Wilshire 5000 can also be used as market benchmark
Tretina, K., & Curry, B., (2021). The Wilshire 5000: Invest in the entire U.S. stock market. Forbes. https://www.forbes.com/advisor/investing/wilshire-5000/