Equity Indices

Use equity indices to guide your stock market investments
By Michelle Cramer The purpose of equity indices is to help investors know where -- and in which markets -- to invest their hard-earned money. Equity index charts provide information on stock market trends so that you can more easily determine what stocks are most likely to earn you money.

When looking for the right equity index to guide you in your financial investments, it's important to know that each index includes different types of companies. Consider the following information about equity index charts:

1. Many equity indices measure only those companies within a certain earnings bracket.

2. Some equity indices provide a measurement of a total market index, including companies in all earnings brackets.

3. A sector index is an equity index that measures the performance of a specific market, such as insurance or technology.

Understand the types of equity indices

An equity index portfolio typically falls under 1 of 3 subcategories: small cap indexes, mid cap indexes and large cap indexes. First, it's important to understand the meaning of "market capitalization," which is the value of a company determined by multiplying the price of the company's stock by the number of outstanding shares. Small cap indexes measure companies with a market capitalization of $300 million to $2 billion. Mid cap indexes have a market capitalization of $2 billion to $10 billion. Large cap indexes have a market capitalization of over $10 billion.
Try:  Visit Russell Investment's website for information on the Russell 1000 Index, which measures the market trends of the top 1000 large cap companies in the nation. Standard & Poor's provides a small cap index with their S&P SmallCap 600. Find a mid cap index through Vanguard.

Consider using sector or global equity indices

While a regional equity index or American equity index may fit your needs by providing the stock market trends for a number of different companies, a sector index can focus your investment interest on a certain specific market or industry. If you wish to invest in companies that compliment your own product or service, then a sector index may be the best way to go. Additionally, global equity indices provide information for an ever-growing global market, harnassing ample opportunities for substantial earnings.
Try:  Visit Street Authority for a list of global indexes. Find lists of sector indexes on the NASDAQ and MSN Money websites.

Examine equity index directories to find an index that fits your needs

There is a vast array of equity index providers out there ready to serve and advise. When surveying an equity index directory, remember to look for an index that will provide the best information for the type of investment you wish to make, whether it be for a smaller company, larger company, specific industry or in the international stock market.
Try:  Big Charts and Signal Central provide a short list of major market indexes. Visit Street Authority for a list of some of the top U.S., international, and regional equity indices available.

• Consult with a financial adviser before investing in any stock, regardless of its record on a market index. There is risk involved in stock investments and no guaranteed return, so be sure you choose a stock that best suits your financial situation.