Stock market talk is everywhere, from TV and radio, to the newspapers and the web. But what does it mean when people say that "the market turned in a great performance today?" What is "the market" anyway?

As it turns out, when most people talk about "the market," they are actually referring to an index. With the growing importance of the stock market in our society, the names of indexes such as the Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq composite have become part of our everyday vocabulary.

This tutorial will define what an index is, discuss some of the major stock indexes and explain how you can invest in the stock market using index funds.

An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.
Companies included in the index are selected by the S&P Index Committee, a team of analysts and economists at Standard & Poor's. The S&P 500 is a market value weighted index - each stock's weight in the index is proportionate to its market value.
The S&P 500 is one of the most commonly used benchmarks for the overall U.S. stock market. The Dow Jones Industrial Average (DJIA) was at one time the most renowned index for U.S. stocks, but because the DJIA contains only 30 companies, most people agree that the S&P 500 is a better representation of the U.S. market. In fact, many consider it to be the definition of the market.
Other popular Standard & Poor's indexes include the S&P 600, an index of small cap companies with a market capitalizations between $300 million and $2 billion, and the S&P 400, an index of mid cap companies with market capitalizations of $2 billion to $10 billion.
A number of financial products based on the S&P 500 are available to investors. These include index funds and exchange-traded funds. However, it would be difficult for individual investors to buy the index, as this would entail buying 500 different stocks.