What is a stock index?

Another stock index you’ve likely heard of is the S&P 500, from the financial information provider Standard & Poor’s, now better known as S&P Global, in New York City. Today, the S&P 500 is more widely used than the DJIA. With 500 stocks, it’s a broader-based gauge of U.S. market performance. 

The Toronto Stock Exchange, or TSX, is Canada’s largest stock exchange. When describing changes in the Canadian stock market, people commonly refer to the S&P/TSX Composite Index, which includes about 250 companies, or the S&P/TSX 60 Index, which includes 60 of Canada’s largest companies (“S&P/TSX” is not a mix of Standard & Poor’s and the Toronto Stock Exchange—the “S&P” refers to S&P Dow Jones Indices, the company that manages these indices and publishes statistics and information about their methodology.)

Are all stocks weighted equally? It depends. Some indices are market-cap-weighted, meaning they include larger weightings of the largest stocks, while others are equal-weighted, with equal amounts of each stock. “Capped” indices have specific limits on how much of each stock is included. The S&P Global 100 Cappedis an example of that, as is the S&P/TSX 60.

This way of following the markets is versatile. In addition to stocks, indices exist for a wide variety of other assets, including bonds, commodities and cryptocurrencies. You can even buy exchange-traded funds (ETFs) based on stock index structures.

Example: “In 1976, Vanguard launched the first index fund, a mutual fund that invested in the S&P 500 index. For the first time, people could buy the S&P 500 with a single trade, without the cost or inconvenience of buying each stock separately. By the end of 2021, approximately USD$7 trillion was invested in indexed products.”

Read more on stock indexes:

• What is direct indexing?
  If you’re wealthy enough to be retired or semi-retired, you’re probably well positioned to consider a hybrid investing strategy known as direct indexing.
• Making sense of the markets this week
  Every week a MoneySense columnist shares financial headlines and offers context for Canadian investors. 
• The MoneySense ETF Finder Tool
  Which ETFs should you invest in? Which ones best suit your risk tolerance? What about personal ethics? Check out the MoneySense ETF Finder tool.
• Switching from mutual funds to ETFs
  Thinking about switching from high-fee mutual funds to low-fee exchange-traded funds? An investor advocate walks through the steps—and precautions—to follow when you’re ready.

About MoneySense Editors

MoneySense editors and journalists work closely with leading personal finance experts in Canada. Since 1999, our award-winning magazine has helped Canadians navigate money matters.

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