Market Index.
In plain English
A market index is a way to measure how a basket of investments is doing by rolling them into one number. The S&P 500, for example, follows about 500 large US companies, so its level tells you roughly how big US companies are doing as a group. An index is just a measurement, not something you can buy directly. To own it, you buy an index fund that holds the same securities. Different indexes track different slices: large companies, small companies, bonds, or specific countries.
01Why it matters
An index is the benchmark you measure your own returns against, so beating or trailing the right index tells you whether your investing choices actually added anything.
02The math, step by step
Say the S&P 500 starts a year at an illustrative level of 5,000 and ends at 5,500. That is a 10 percent gain for the index (this is a made-up example, not current market data). If your own US stock fund returned 7 percent that year, you trailed the index by 3 points, which is a signal to check why.
03What this is NOT
An index is NOT itself an investment. It is a measuring stick. You invest in an index fund that copies it, not in the index number directly.
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice