A statistical measure of a market segment used as a benchmark for performance.
A market index is a collection of securities (stocks, bonds, etc.) that represents a specific market or segment, used to measure market performance and serve as a benchmark. The most famous index is the S&P 500, which tracks 500 large-cap U.S. stocks and is considered a proxy for the overall U.S. stock market. Other major indexes include the Nasdaq-100 (large-cap growth stocks), Dow Jones Industrial Average (30 blue-chip stocks), and bond indexes. Indexes track different segments: market cap (large-cap, mid-cap, small-cap), geography (U.S., international), sectors (tech, healthcare), and asset classes. Index funds track indexes and are excellent low-cost investment vehicles. Understanding indexes helps you evaluate investment performance—did your portfolio outperform or underperform the relevant benchmark?