How Are Index Funds Calculated?

Index prices are the weighted average by market capitalization of their component assets.  In the case of the S&P 500, the largest 500 companies by market capitalization listed on the NYSE or Nasdaq have their market caps added up and then divided by some number so we end up with a nice number humans can visualize.  The Index funds then tracks this index giving us an investment opportunity to buy all stocks in the index at once.

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Basic Investing Vocabulary

I think it’s good to review some key vocabulary to understanding how to invest.  I’m going to keep things as simple as possible and only define the terms in context to investing.  If you want to know more, google it and read more on wikipedia.

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