[US Stock Basics] Dow vs S&P 500 vs Nasdaq | Which Index Fits My Portfolio?

[Compass of the US Stock Market: Mastering the Big 3 Indices]

The US stock market is like the heart of global finance. There is a saying, "When the US market sneezes, the Korean market catches the flu," indicating its absolute influence. However, when you actually try to start investing in US stocks, terms like Dow, S&P 500, and Nasdaq can be confusing. In this post, we clearly analyze the features and differences of these three representative indicators that show the flow of the US stock market.

US Stock Basics: Dow vs S&P 500 vs Nasdaq, Which Index Suits Me?

1. The Traditional Powerhouse, Dow Jones Industrial Average (DJIA)

The Dow Jones Industrial Average (DJIA), born in 1896, is the oldest stock index in the United States. Commonly referred to as the 'Dow Index', it consists of only 30 "Blue Chip" companies that lead the US economy. It includes representative companies from various industries that everyone knows by name, such as Apple, Microsoft, and Coca-Cola.

The most distinctive feature of the Dow Index lies in its calculation method. It uses a Price-weighted Index method, where stocks with higher 'share prices'—rather than market capitalization—have a greater influence on the index. While some point out that a sample of only 30 companies is too small to represent the entire market, it remains an important indicator for investors who value conservative and stable trends due to its long history and symbolism.

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2. The Market Standard, S&P 500 Index

The S&P 500, published by Standard & Poor's, is considered the 'standard' that best represents the US market. It selects and calculates 500 solid large-cap companies listed on the New York Stock Exchange (NYSE) and Nasdaq, covering about 80% of the total US stock market capitalization. It can be seen as the practical 'report card of the US market'.

This index follows a Market Capitalization Weighted method, where the larger a company's size (market cap), the greater its impact on the index. Investment guru Warren Buffett famously instructed in his will, "Put 90% of the money into the S&P 500 index fund." This is evaluated as the most rational way to bet on the long-term growth of the US economy while reducing the risk of selecting individual stocks.

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3. The Symbol of Technology and Innovation, Nasdaq (NASDAQ)

Nasdaq is a market where venture companies and technology stocks are primarily listed. When we commonly refer to the index, we usually look at the 'Nasdaq 100', which gathers the top 100 non-financial companies. Big Tech companies showing explosive growth, such as Nvidia, Tesla, and Amazon, are positioned here.

Nasdaq has as much Volatility as its high expected returns. During periods of interest rate hikes or recession fears, it often shows larger drops than other indices. Therefore, it is an index suitable for aggressive investors who prefer a tech-centric portfolio or seek high capital gains.

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4. Summary of the Big 3 Indices at a Glance

The three indices each have different characteristics and appeal. Check the differences at a glance through the infographic and table below.

Category	Dow Jones (DJIA)	S&P 500	Nasdaq 100 (NASDAQ)
Components	30 Ultra-large Blue Chips	500 Representative Large Caps	Top 100 Tech-focused
Calculation Method	Price Weighted	Market Cap Weighted	Market Cap Weighted
Key Features	History, Tradition, Stability, Dividends	Total Market Representation, Balance	Innovative Tech, High Growth
Investment Style	Conservative, Seeking Stability	Seeking Market Average, Long-term	Aggressive, Seeking High Returns

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5. Conclusion: Which Index is Right for Me?

Ultimately, one cannot say which index is 'better'. If you want stable trends and dividends, look to the Dow; if you want to follow the growth of the entire market, the S&P 500; and if you aim for high returns even if it means enduring volatility, the Nasdaq is a desirable benchmark. Utilizing ETFs that track the appropriate index (DIA, SPY, QQQ, etc.) according to your investment style and goals can also be an excellent strategy.

Key Summary:
The Dow symbolizes 'Stability', the S&P 500 'Representation', and the Nasdaq 'Growth'. It is important to understand the characteristics of each index and establish an investment strategy by selecting the index that fits your investment style.

The content of this blog is for reference only regarding investment judgment, and investment decisions must be made under the individual's own judgment and responsibility. Under no circumstances can the information in this blog be used as evidence of legal responsibility for investment results.