Index

An index is a list of investments plus a rule for combining the value of those investments into a single number. The S&P 500 measures 500 large US companies and reports the result as one number that moves on every trading day.

If an index measured three stocks whose combined value went from $1,000 to $1,050, it would be up 5 percent. Widely quoted stock indexes usually give bigger companies more weight.

An index is only a measuring stick, so you cannot put money into one directly. What you can buy is a fund that tries to hold the same investments the index measures. That fund charges a fee and may not match the index exactly, and it carries the full risk of those investments, including losing value. Indexes also exist for bonds and single industries.