Perspective: Why the Dow demolished the S&P 500 this year
If you’re not familiar with how the Dow and the S&P work, which is the case for millions of retail investors, you might be tempted to dump some or all of your S&P-linked mutual funds and ETFs and replace them with Dow-linked investments.
The crucial difference between an index and an average is why there are $5.66 trillion of investments tied to the S&P, but only about $40 billion tied to the Dow. It’s also why the S&P is used as a benchmark by investors and money managers, but the Dow isn’t taken seriously. Should UnitedHealth Group, whose share price was about $528 as of Thursday’s market close, decide to split its stock five-for-one to get its price down to about $100 to attract small retail investors, its weight on the Dow would fall by about 80 percent, the weight of the 29 other Dow stocks would rise and the divisor would change. But there would be no impact on the S&P.
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