The Major Differences Between the S&P & the Dow Jones Industrial Average

• The Standard and Poor's 500 Index (S&P 500) and the Dow Jones Industrial Average are both indexes that investment professionals commonly use to track the performance of large U.S. stocks. They are both made up entirely of the stocks of large U.S. companies, almost all of them with worldwide operations.

Sample Size

• The S&P 500 tracks the performance of the stocks of the largest 500 companies in the United States. If a company goes out of business or two companies merge into one, the S&P 500 merges another large company into the index to keep the total at 500. The DJIA tracks the performance of only 30 large companies.

Use in Index Funds

• The S&P 500 index is popular among index fund investors. Index funds are mutual funds that invest in the stocks within a given unmanaged index, without regard to the prospects of the individual companies. No research is needed. Expense ratios on index funds are much lower than they are for actively managed funds. The S&P 500 index's larger number of companies provides more diversification than the smaller DJIA.

Weighting

• The Dow Jones Industrial Average performance is price weighted. The component companies with higher share prices have a disproportionate effect on the performance of the index. The S&P 500 is weighted by the total market capitalization of each company. Market capitalization equals the stock price times the total number of shares.