Dave Says…the Lowdown on the Dow Jones

Dear Dave,

We hear all kinds of numbers relating to the economy every night on the news. To be honest, I have no idea what most of them mean. Can you tell me more about the Dow Jones Industrial Average?


Dear Ken,

The Dow is an index of the stocks of 30 selected companies. We’re talking about outfits like Wal-Mart, Coca-Cola and Nike – some of the big boys. The percentage that the stock prices of these companies rise or fall as a group, on any given day, is the Dow Jones Industrial Average for that day.
Technically, this index is not a good representative of what the stock market is doing because it only takes into account 30 companies. The S&P is a much better measure of what the market is doing, because it represents the stock-price activity of 500 companies.

Let’s say you’re watching the news, and a reporter tells you the market just went down 300 points and it was at 10,000. That represents only a three percent change, and that’s not big news – regardless of what some of the “experts” say.
Great question, Ken!

– Dave

Dave Ramsey is the bestselling author of The Total Money Makeover.

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