Money Basics: What's the Dow Jones?

Welcome to Money Basics, Yahoo Finance’s new personal finance series offering quick explanations for some of the most important terms involving your money. 

You’re probably heard someone say, “The market is up today,” but do you ever wonder what that actually means. There’s a good chance they’re talking about the Dow Jones Industrial Average (DJIA), often shortened to just “the Dow.”

Charles Dow and Edward Jones

The Dow was created in 1896 by Charles Dow, an American journalist who, along with Edward Jones, founded the Dow Jones & Company and the Wall Street Journal. The DJIA is only one of several averages Dow Jones runs. It started with 12 company stocks, but it increased to 30—where it remains today.

The Dow is not an actual average of the 30 stock prices, it’s a weighted average. That means companies with higher stock prices have a greater effect on the Dow’s movements. Companies on the Dow lead their industries; you’ll see big-name companies like Coca-Cola, McDonald’s and Boeing. The companies listed change from time to time. Only one company of the original 12 is still part of the average: General Electric.

Traders on the floor of the New York Stock Exchange

An economic barometer

The word “industrial” in the name of the Dow Jones Industrial Average is no longer totally accurate as most of the current companies have very little relation to heavy industry.

The Dow was designed to be an indicator of the overall U.S. economy. It is largely still used as the barometer for the how well the economy is doing. Dow companies are traded on the New York Stock Exchange and the NASDAQ exchange. Although the Dow only tracks large companies, it is one of the most frequently used indexes in the world.

More from Money Basics:

• What is a credit report anyway?
• What’s your net worth?
What’s the NASDAQ?
• What is APR?

 

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