What is a financial market index?

Fsp Invest, 08 Jan. 2014

Tags: financial market index, financial market indices, index fund, jse all-share index, what is a financial market index, what are financial market indices used for, what is a financial market index used for

You’ll often hear people talking about this or that financial market index. The UK’s FTSE All-Share Index, the JSE All-Share Index and the Standard & Poors 500 Index are all examples of financial market indices. But what are they and why do we use them?

Financial market indices attempt to show the overall behaviour of a group of securities such as shares or bonds. 
Among other things, investors use them to measure the rate of return on the market.
You can also use a financial market index as a benchmark to measure the performance of your portfolio against.
Using financial market indices to create index funds
You could use an index to create and track an index fund. 
An index fund is a collective investment scheme like an ETF
It consists of a portfolio that matches the components of an index like the FTSE/JSE Top 40 Index. 
You can also use an index to predict share price movements when conducting technical analysis
By knowing what a financial market index is, you can better understand how your portfolio is performing against a benchmark, and make better investment decisions moving forward. 

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