For decades, U.S. investors have put their money largely in stocks that appear within popular benchmarks like the Dow Jones Industrial Average. But to modernize your portfolio, you need to turn to a measure that accurately reflects all the investments that are available to you.

Back in November, Dow Jones released a brand new index. Dubbed the Global Dow, it provides an extremely useful standard against which international investors can measure their performance.

Why the Dow isn't enough
For much of the 20th century, the United States dominated the world economy. From its rise in the post-World War II period to the tech boom of the 1990s, U.S. markets tended to lead, and other global markets followed suit.

Given this dominant position, it made sense for investors to follow benchmarks that focused on U.S. stocks. After all, longtime Dow stocks like ExxonMobil (NYSE:XOM) don't only reflect activity in the U.S. -- like many Dow companies, it has global operations that impact a huge number of countries' economies.

Now, though, the current financial crisis has highlighted the need among other nations of the world to diversify their investment exposure. While the U.S. may not lose its strong influence in the near future, other countries will find it in their best interest to seek out economic alternatives that reduce their dependence on the health of the U.S. economic system.

How the Global Dow works
That's where the Global Dow comes in. Keeping a simple approach, the Global Dow includes 150 companies from around the world. About 40% of its value comes from U.S. stocks; the rest is split mainly among Europe, Japan, and emerging markets.

Within the index, you'll find a diverse set of companies:

  • Plenty of existing members of the Dow Industrials make the list, including Coca-Cola (NYSE:KO).
  • Yet the index also includes members of the Dow's Transportation average, such as Southwest Airlines (NYSE:LUV) and FedEx (NYSE:FDX).
  • First-world countries have strong representation, with companies like National Grid (NYSE:NGG) making the list.
  • Finally, unlike the megacap stocks you're used to seeing in the Dow, you'll find plenty of smaller companies with room to grow, including Suntech Power (NYSE:STP) and First Solar (NASDAQ:FSLR).

This broad mix of companies from different areas of the world, in a wide range of industries, and even of much different sizes gives investors a much different type of benchmark to follow. As a measuring tool, the Global Dow has many of the same advantages much broader indexes share, while retaining the relative simplicity of tracking a smaller number of stocks.

Keeping it equal
Perhaps the biggest improvement in the Global Dow is its equal weighting of components. As a stock-price weighted average, the Dow Industrial Average gets much more of its value from companies with high-priced shares than those that are cheaper on a per-share basis. So lately, several Dow components that trade in the single digits have had little impact on the Dow's movements in comparison to $70 and $80 stocks.

Equal weighting also tends to be more in line with the way that most people invest. One popular way to invest in individual stocks involves dividing your total assets into equal parts, and then investing similar amounts in all the companies that meet your standards. Occasionally, you might concentrate your portfolio in a particularly promising company -- but if you value diversification above other considerations, you'll probably stick with relatively equal allocations rather than investing more in large companies and less in tiny ones.

Dethroning the Dow? Don't hold your breath
Of course, given how popular the Dow Industrials are as a benchmark for U.S. stocks, you shouldn't expect the Global Dow to take center stage anytime soon. But if you want to be a successful investor who looks at opportunities wherever they may arise, you'll want to track your progress against an index that shares your general philosophy. The Global Dow is one metric that global investors everywhere can use.

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