Benchmark
A Benchmark is a standard by which a security’s performance is compared. A Benchmark is usually an index of securities of the same or similar class. The following list summarizes the major indexes:
S&P 400
- Composition: Mid-cap
- Weighting: Market cap
- Stocks Tracked: 400
S&P 500
- Composition: Overall market
- Weighting: Market cap
- Stocks Tracked: 500
S&P 600
- Composition: Small Cap
- Weighting: Market cap
- Stocks Tracked: 600
RUSSELL 2000
- Composition: Small Cap
- Weighting: Market cap
- Stocks Tracked: 2,000
DOW
- Also Known As: Dow Jones Industrial Average (DJIA) or Dow 30
- Composition: Large Cap
- Weighting: Price
- Stocks Tracked: only 30
NASDAQ
- Also Known As: NASDAQ Composite Index
- Composition: Tech stocks
- Weighting: Market cap
- Stocks Tracked: approx. 4,000
My Take
Just as tradition has stuck us with the English vs. Metric system, so too has tradition stuck us with the Dow vs. S&P 500. The Dow is a price-weighted average, meaning that the higher a given security’s price, the larger the impact on the index. The flaw in a price-weighted average is that it does not give any credence to a security’s shares outstanding. The S&500 does not suffer from the same shortcoming because it is a market-cap-weighted index (market cap = shares outstanding x price per share). In addition, the Dow only tracks 30 stocks whereas the S&P tracks 500.
