Dow Jones, also known as the Dow Jones Industrial Average, or more simply by Dow, is a well-known stock market benchmark in the U.S. that tracks 30 of the largest blue-chip stocks.
It’s mainly used as a tool to measure the overall performance of the stock market, and investors are able to track value changes of the Dow.
If you’re looking to invest in many different companies at the same time, you may want an investment product that keeps track of the average Dow Jones, providing you with diversification in your portfolio.
If you’re interested in investing in the Dow, then you’re in the right place! Below, you’ll find everything you need to know about this investment.
Investing In Dow Jones In 3 Steps
Following these three steps, you can start investing in Dow Jones.
1. Decide How To Invest
If you are looking to invest in Dow, there are a few different ways to do so. Firstly, you could simply purchase shares from each of the 30 companies to form the average.
These are price-weighted; therefore, purchasing shares in each will provide you with the right exposure to each business against the index.
Another option is through a mutual fund that tracks the Dow. or by purchasing shares using an exchange-traded fund (EFT).
This ensures that you only need to purchase shares in singular security in order to gain exposure among the 30 companies in the dow, making the process much more efficient.
Although, it is important to remember that mutual funds generally require a minimum investment that can range in the hundreds or thousands of dollars, as well as both mutual funds, and EFTs, contain fees.
2. Open An Account
To begin your investing journey, you’ll need to open a brokerage account.
This entails finding the right brokerage firm for you and going through the process of opening an account.
Generally, the process involves filling out paperwork, providing identification information, and linking a bank account to deposit funds.
Likewise, some brokerages also undertake EFTs and mutual funds, offering perks.
These perks could include discounted commission when you purchase their funds.
If you’re interested in investing in a particular fund, then this will help you guide what broker to choose.
On the other hand, when purchasing shares in each business, you’ll want to be aware of the broker’s commissions that are charged for each stock trade.
3. Submit a Buy Order
The last thing to do is purchase shares through individual businesses, mutual funds, or through tracking an ETF.
You’ll want to determine your investment worth and then submit an order to purchase your shares.
What You Need To Known Prior To Investing In Dow Jones
Before you start investing, there are a few things to consider.
Firstly the Dow Jones, as much as indexes and stock averages go, is moderately narrow.
What we mean by this is that it only comprised 30 businesses, whereas the S&P has this number of companies.
Moreover, the Dow specifically focuses on large, blue-chip stocks. It ranges over all industries; however, doesn’t contain utility or transportation stocks.
Likewise, it’s important to remember that whatever method you choose to invest in the Dow, you’re likely going to pay fees.
Purchasing shares through each company may require commissions, and investing precise amounts can be difficult.
For mutual funds or ETFs, while it may be easier to invest, you’ll have to pay an expense ratio that will help cover the fund’s yearly operating expenditures.
For instance, a 0.25% expense ratio charged by a fund will require you to invest $20,000, with the annual fees equating to $50.
Understanding the Risks When Investing In The Dow Jones
It’s important to remember that the Dow is an average of stocks, and these stocks are comparatively volatile, before investing.
Large drops in stock prices as a result of rising bad news or economic downturn can be experienced by even the most established of companies. If this were to happen, the value of your investments would decrease.
Leaving you waiting months or even years for your funds or stocks to replenish, which would allow you to earn a profit or sell them to break even.
In the worst-case scenario, you could lose all your investments. However, this requires every company in the Dow to become worthless, which would unlikely happen, but remains a theoretical probability.
The general rule of thumb is that you should only invest money that you can afford to lose.
Pros and Cons Of Investing In The Dow Jones
Below, you will find all the pros and cons when it comes to investing in the Dow Jones.
Pros
- Major American business exposure – Primarily focuses on large, blue-chip companies including Coca-cola, 3M, and Apple. All these companies have vast histories and extremely successful businesses. Therefore, we can presume that they will continue their successes.
- Require low-minimum investment to begin – Through purchasing investment shares in a Dow ETF, you can generally begin your journey with minimal amounts of money.
- Diversified portfolio – You will be exposed to all the 30 companies found in the Dow, at once.
Cons
- Limited amount of mutual funds and ETF tracking – Generally, fund providers emphasize broader indexes, such as the S&P 500, rather than the Dow, so your investment options for investing in ETF or mutual funds are limited.
- Only focuses on one stock class – Dow Jones only focuses on large, blue-chip companies; therefore, investing here will prevent you from gaining exposure from small to medium-sized businesses.
Final Thoughts
Dow Jones is a popular stock market benchmark within the United States; that tracks 30 large, blue-chip stocks in businesses.
Therefore, investing in the Dow can be very advantageous as you get exposure to a diversified portfolio.
Hopefully, this guide has provided you with everything you need to know about Dow Jones.
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