Millions of investors follow the movements of the Dow Jones Industrials (DJINDICES:^DJI) on a daily basis. Yet as much as the Dow gets tracked, relatively few investors actually know how to buy stocks that are included in the Dow in the most efficient way possible. Let's take a look at the companies in the Dow Jones Industrials and the best way you can get exposure to them.
How should you buy the Dow?
The beauty of the Dow Jones Industrials is that it's a price-weighted average, so all you need to do if you want to duplicate the Dow's return is to buy an equal number of shares of each of the 30 stocks that make up the venerable average.
But there are a couple of problems with that approach. First of all, even if you were to buy just a single share of each of the 30 Dow stocks, you'd pay more than $2,000. Moreover, with 30 different commission charges to pay, you could easily end up out as much as $300 in investment costs on top of what would go toward your investment. Clearly, it'd be better if you could figure out how to buy stocks in the Dow Jones Industrials a bit more efficiently.
Fortunately, through the simplicity of exchange-traded funds, you can own the stocks in the Dow Jones Industrials a lot more cheaply and effectively. The SPDR Dow Jones Industrials ETF (NYSEMKT:DIA) seeks to match the performance of the Dow Jones Industrials by owning equal numbers of all the shares in the index. You can buy or sell shares of the ETF with a single commission charge, and with the shares of the ETF trading for just $167, it's a lot cheaper to use the ETF than it is to buy shares of all 30 components individually.
Unfortunately, none of the major brokerage companies have added the SPDR Dow ETF to their list of commission-free ETFs, making it impossible to save even more by using the preferred ETF method to own the stocks in the Dow Jones Industrials. Nevertheless, even if you have to pay a modest commission to your broker, it's likely worth the advantages over having to buy every single Dow stock separately.
Figuring out how to buy stocks with a minimum of hassle and expense is a key element to successful investing. With ETFs like the SPDR Dow ETF, getting exposure to the Dow Jones Industrials is a lot simpler than the alternative. If you want to profit from the Dow rather than just tracking its daily movements, then take a closer look at the SPDR Dow ETF and see if it makes sense for you in your portfolio.
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Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.