The Dow Jones Industrial Average (DJIA), also known as the Dow Jones or Dow 30, is one of the most well-known stock market indices. It tracks the daily stock market movements of 30 publicly traded companies in the United States that are considered to be industry leaders. The Dow Jones Industrial Average (DJIA) is one of the stock indices developed by Edward Jones, founder of Dow & Jones Company, and Charles Dow, editor of the Wall Street Journal.
The DJIA launched in 1896 with just 12 companies from the United States, all of which were mostly involved in industrial activities. Railroads, cotton, gas, sugar, tobacco, and oil were among the businesses that made up the industrial sector. The index has evolved with the economy over time, and it now encompasses businesses from a variety of industries, including technology, health care, and retail. The index is changing when one or more components face financial turmoil, making them a less valuable entity in their market, or when the economy undergoes a major shift that must be mirrored in the index's composition.
The index gives more weight to stocks with higher share prices. As a result, a larger percentage change in a higher-priced variable has a bigger effect on the final estimated value. Charles Dow measured the average at the start of the Dow by applying the prices of the twelve Dow component stocks and dividing by twelve, thus obtaining a standard average. There have been changes to the index over time, such as mergers and stock splitting, which have all had to be taken into account.
Today, the Dow Jones Industrial Average is a price-weighted index in which the prices of the index's 30 stocks are put together and then separated by a divisor known as the Dow Divisor. The Divisor is used to offset the impact of systemic shifts including stock splits. The Dow Divisor is a fixed constant that is used to calculate the impact of a one-point change in each of the Dow's roughly 30 stocks. There have been times where the divisor had to be adjusted in order for the Dow value to remain constant.
While you cannot invest directly in a stock index like the Dow 30, you can invest in index funds that track it. Investing in a fund that tracks the Dow 30 is a smart choice if you are looking for consistency rather than enormous returns. Blue chip stocks in the indexes tend to have a lower volatility. It is important not to let short-term volatility influence your investing decisions, regardless of which index you use to track the stock market.