Using indexes for investing

The stock market is a crazy and often wild thing. It rises and falls day by day, and sometimes it either rises or falls for years at a time. You never know when some sort of world event might radically change the way the market operates. None of us really know if we will loose all of our money tomorrow or in five years from now, or if we migth make a huge fortune in the next couple of hourse. Companies make good and bad decisions and produce good and bad products. Given this terribe unpredictability of the market, how can you possibly find reliable information about how to invest. Is there such information? This depends on how we define reliability. There is no information that is completely safe or secure. You should never assume that a particular forecast will come true. However, there are certain tools you can use to get a feel for what the market is doing right now. These tools are called indexes.

An index is a numerical (statistical) measurement that tells you how much a particular group of stocks (a portfolio) have changed over a period of time. This measurement is used to predict or get a fell for what these types of stocks are doing over all in the market. Usually this is measured in terms of prices. If the general price of the index changes this is meant to indicate a similar change in the stocks included in the index.

There are a number of famous indexes in the world and especially in the U.S. One that we have all heard of is the Dow Jones, and probably also the NASDAQ, or the NYSE (New York Stock Exchange). However, these are just a few indexes. There are several more around for different types of stocks. These indexes have been around for a long time and are commonly used by most investors. But how can you possibly use an index to do your own investing. Is it too complicated?

Not necessarily. Indexes are complicated in terms of the way they are compiled, but if you can learn to read an index and watch it over time you might be able to make some good stock predictions. Get a feel for the way the index changes with certain market changes or factors. Observe carefully and take notes. Be sure to not confuse the way a particular index is working for the work of the entire market. Indexes only cover a particular portfolio of stocks. The market is simply too complicated to be measured all at once with any kind of exactness. Make sure you are using a good index when you start to read it for investment information. Realize that a bad index could be disastorous. Research the index to make sure it has a good reputation. Consult an expert for their opinion about a particular index. Start with small investments and watch how they change over time. This process will help you get a fell for the way an index works.

Make conservative investment decisions based on the way the index is moving. Never invest everything in just one type of stock or security at one time. Diversify your investments and make sure that you watch indexes for the different investments. The key to a good return is being careful and getting good information. Remember that no index is full proof. The stock market is risky by definition and you should never invest more than you can afford to loose. Of course a bit of luck will also help a lot!