By all accounts, the U.S. stock market as a whole has had a very positive run over the last 5 years, even including the Covid-induced market crash in 2020. How do we measure that success? Well, we generally use an index like the Dow Jones Industrial Average or the S&P 500.
Without going into the weeds about how they’re made, these 2 indices show VERY different results. The S&P 500 has risen by 89% over the last 5 years, as of December 11th. The Dow Jones Industrial Average is up by a lowly 55% over that same period (CNBC, 2024).
That’s a pretty massive difference. The stock market is a large, dynamic place. These 2 benchmarks attempt to measure market performance very differently, which is why their results are so far apart. Neither one includes performance of smaller companies, as they both only include some of the very largest company stocks in the United States. That’s to say that they have their flaws. It’s like trying to judge how good a baseball team is by only using the stats of three of the nine hitters.
If you want to really try to measure the entire market’s performance, the most inclusive measure is the CRSP U.S. Total Market Index. It includes 100% of the U.S. investable equity market. That is to say that includes every traded stock in the country listed on an exchange. That totals roughly 3,600 companies.
Let’s take a look at all three of these indices over the long term and see how they stack up against each other over the last twenty years, thanks again to our friends at CNBC. The Dow Jones Industrial Average has risen 310%. The S&P 500 is up 402%. The Total Market Index has risen 412%. All three are different rulers measuring different distances.
There are many other measuring sticks out there that attempt to measure other parts of the domestic market. The S&P 600, the Russell 2000, the S&P 400, the NASDAQ Composite, are just to name a few. They all have a different way they are built, and they all have their own performance history.
Why does any of this matter to you? If you have investments in the market, there are MANY ways to measure how they’re doing relative to the market itself. Simply measuring your returns against an index may be useful but doesn’t really tell the whole story.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.