The Dow Jones Industrial Average Index is among the world's oldest exchanges. While it's sometimes overshadowed by the Nasdaq and tthe S&P 500, for many investors, the Dow Jones is a proxy for stock markets. Many beginner investors wonder whether they can buy Dow Jones stock.
When it started, the Dow Jones had a base value of 40.94, and in 1928, it became a 30-stock index. The index's constituents have changed many times since its inception, and the most recent change was in August 2020.
What is the Dow Jones?
The Dow Jones is a price-weighted index of 30 U.S. companies. In a price-weighted index, a stock’s price determines its weight in the index. To calculate the value of the Dow Jones, the stock prices of all 30 constituent stocks are added and then divided by a divisor. The divisor is changed frequently to reflect corporate actions such as stock splits and dividends.
Is the Dow Jones a stock?
The Dow Jones isn't a stock, but a collection of stocks. You can't buy the Dow Jones like you can Apple stock. However, you can replicate the Dow's returns by buying all 30 of its stocks, Dow Jones futures, or an ETF that tracks the index.
How do Dow Jones points work?
You may often hear that the Dow Jones is up or down by a certain number of points. Unlike for a stock, a one-point movement in the Dow Jones Index isn't equivalent to $1 or $0.01. A point reflects a unit arrived at by adding the Dow's 30 stocks by a divisor, as described above. As the index's stocks' prices change, so does the index's value.
How do Dow Jones futures work?
A futures contract is an agreement between two parties to buy an asset at a pre-determined price at a future date. Dow Jones futures are open after and before market hours. You don't need to hold futures contracts to maturity, meaning you can square off your position before the contract expires.
The Dow Jones versus the S&P 500 versus the Nasdaq
There are many differences between the Dow Jones, S&P 500, and Nasdaq:
• The number of constituents. The Dow Jones has 30 stocks, while the Nasdaq 100 and the S&P 500 have 100 and 500 stocks, respectively.
• Index constitution. The Nasdaq 100 is heavy on tech stocks, while the Dow Jones has been overweight on industrial names. The S&P 500 is much more diverse, with exposure to many sectors and subsectors.
• Methodology. The Dow Jones is a price-weighted index, while the S&P 500 and Nasdaq are market-cap-weighted indexes, where stocks' weight is determined by their market capitalization.
Why is the Dow Jones underperforming?
Because of the differences in the Dow's, S&P 500's, and Nasdaq's constituents, the indexes' performance can vary greatly. U.S. tech stocks are among the best performing asset classes in 2020, and as a result, the tech-heavy Nasdaq index has performed well. Meanwhile, the Dow Jones has underperformed the S&P 500 and Nasdaq because it has fewer tech stocks.
Can you buy Dow Jones stock on Robinhood?
You can buy Dow Jones futures, ETFs, and the 30 Dow constituent stocks on any trading platform, including Robinhood. However, as previously stated, you can't buy Dow Jones stock.