Your Money Matters: Understanding The Dow Jones Industrial Average, S&P 500, & The NASDAQ

The Dow Jones Industrial Average, S&P 500, and the NASDAQ are reported daily, but they are still difficult to understand for some.

Mikey Manghum is the new Vice President of Regent Private Wealth, and he joined News On 6 to help explain some of the basics.

Mangum said a stock is defined as "a small piece of ownership in a company" that investors buy with the hope the company will grow and increase the value of their investment. He contrasts this with investing in market indexes like the Dow Jones or S&P 500, which are "collections" or "composites" of many different companies.

As Mangum explains, "If you had a single panel window and you throw a rock through that window, and that's an individual stock, that's the whole thing smashed, and you have to replace it. So there's a little bit of risk with investing in a single stock. So people want to diversify away that risk, and so they've created a window with maybe 16 or 20 or 500 different little window panes within it."

The Impact of the Stock Market

Mangum acknowledges that many people wonder how the ups and downs of the overall stock market impact their personal investments and the economy. He notes that the effect depends on how diversified an individual's portfolio is:

"If you have all of your money in the S&P 500, and you hear the market is down. It's more than likely when you log into that account, you're going to see that reflection there. But if you have maybe some real estate holdings, and you have a separate business, and you have a little bit of money invested in the market, and maybe have some bonds, or you have some things that aren't correlated, precious metals, things of that nature, then it's not going to have as much of an impact on your overall portfolio as it is on the things invested, specifically with the movement of the stock market."

Investing in Individual Stocks

Mangum cautions that investing in individual stocks carries more risk than investing in diversified funds or indexes. He advises that individual stock investing is "more of an advanced move" that requires a deep understanding of the company and its industry. As he explains, "the risk isn't necessarily in the investment, it's in the investor."

Retirement Investing

Finally, Mangum discusses how retirees should adjust their investment strategies as they transition from accumulating wealth to drawing it down. He suggests a more conservative approach with a greater allocation to bonds and cash equivalents to reduce volatility.