Better Buy: Boeing or All 30 Dow Jones Stocks? | Personal Finance

Better Buy: Boeing or All 30 Dow Jones Stocks? | Personal Finance

The Dow is a unique stock index

The Dow Jones is a bit wacky as far as major stock indexes go. First, it only contains 30 stocks, which means that it is much more exposed to individual holdings than the S&P 500 or the Nasdaq Composite. The Dow also has a novel approach to weighting. Market cap weighting is the most popular composition method. Some indexes even pursue equal weighting so that smaller stocks can exert the same influence on index returns as larger stocks.

The Dow zigs where others zag, and its index weighting is based on share prices for each constituent stock. That means that stock splits can drastically alter the composition without changing the value of underlying companies. It also means that smaller companies can have a larger influence on index returns, simply because their price per share is high.

As it stands, Boeing currently makes up 4.7% of the Dow. Industrials are the second-largest sector in the index right now, with 17.8% of the total allocation. Tech is larger by 3 percentage points. Buying an index fund that tracks the Dow, such as the SPDR Dow Jones Industrial Average ETF Trust (NYSEMKT: DIA), provides diversified exposure, but not nearly to the same degree as other popular indexes.

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