Why I Prefer the S&P 500

I’ve written many times that the Dow Jones Industrial Average is a poor index. The stocks are weighted by price, which may have made sense 100 years ago but isn’t necessary today. That said, the Dow isn’t terrible, it’s just not what I like.

Instead, I prefer the S&P 500 which is weighted by market value. There are purists who insist that 500 stocks is too narrow and that we should look at broader options like the Russell 3000 or even the Wilshire 5000.

I get their point, but I think they’re being unnecessarily purist. The S&P 500 isn’t perfect, but it’s good enough for our purposes. To make my point, look at this chart below.

The Dow is in green (or what the drop down calls cyan) and it drifts noticeably from the other two lines. And yes, there are two more lines. Blue and black are nearly on top of each other. That’s how closely the S&P 500 and Russell 3000 track each other.

Posted by on August 22nd, 2018 at 12:46 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.