Financial Elements: What is an Index?

What is an Index?

An index is a method to track the performance of a group of assets in a standardized way. Indexes typically measure the performance of a basket of securities intended to replicate a certain area of the market.

These could be broad-based in an effort to capture the movement of the markets.

The S&P 500 Index and the Bloomberg US Aggregate Bond Index are common benchmarks for the U.S. stock and bond markets, respectively.  

Indexes often serve as benchmarks against which to evaluate the performance of a portfolio's returns.

You cannot invest directly into an index.

KEY TAKEAWAYS

• An index measures the price performance of a basket of securities using a standardized metric and methodology.
• Indexes in financial markets are often used as benchmarks to evaluate an investment's performance against.

A Financial Element, similar to a literary element, refers to components of a Financial Narrative. Understanding the financial elements can help us in creating and planning Your Financial Narrative. We will continue to look at various other financial elements each week as a part of the Financial Fridays