Dow Jones Industrial Average

What is the Dow Jones Industrial Average Stock Index?

The Dow Jones Industrial Average (DJINDICES:^DJI) is a stock index containing the stocks of 30 of the largest and most important U.S. companies in the global economy. It is one of the oldest stock indexes still in use today, and it's also one of the most recognized across the world as a measure of the performance of the U.S. stock market.

The Dow Jones Industrial Average is managed by S&P Dow Jones Indices, which decides which stocks are included and when any changes to the list are necessary. Unlike many other stock indexes, there's no set guideline that S&P Dow Jones Indices follows to decide which stocks to take out and which to add in their place. Typically, though, companies get removed when they fall out of favor, shrink in size compared with their rivals, merge with other companies that are already Dow Jones components, or break up their business segments into multiple and independent publicly traded stocks. Despite its name, the Dow Jones Industrial Average is not limited only to stocks in the industrials; it includes stocks from many different sectors and industries, except for utilities and transportation.

Interactive Chart: The Dow Jones Industrial Average (DJIA)

How long has the Dow Jones Industrial Average been around?

The Dow Jones Industrial Average started in 1896. The index was created by Charles Dow, who was editor for The Wall Street Journal and who founded Dow, Jones & Company alongside partner Edward Jones.

At the time of its launch, the Dow Jones Industrial Average had only 12 component stocks. Most of them were industrial companies, including General Electric (NYSE:GE). Over time, the number of stocks expanded, reaching its current level of 30 in 1928. Along the way, stocks outside the heavy industrial sector became part of the Dow Jones, but the index kept its traditional name anyway.

Dow Jones companies list

There are 30 stocks in the Dow Jones Industrial Average Index:

1. 3M (NYSE:MMM)
2. American Express (NYSE:AXP)
3. Apple (NASDAQ:AAPL)
4. Boeing (NYSE:BA)
5. Caterpillar (NYSE:CAT)
6. Chevron (NYSE:CVX)
7. Cisco Systems (NASDAQ:CSCO)
8. Coca-Cola (NYSE:KO)
9. Disney (NYSE:DIS)
10. Dow (NYSE:DOW)
11. ExxonMobil (NYSE:XOM)
12. Goldman Sachs (NYSE:GS)
13. Home Depot (NYSE:HD)
14. IBM (NYSE:IBM)
15. Intel (NASDAQ:INTC)
16. Johnson & Johnson (NYSE:JNJ)
17. JPMorgan Chase (NYSE:JPM)
18. McDonald's (NYSE:MCD)
19. Merck (NYSE:MRK)
20. Microsoft (NASDAQ:MSFT)
21. Nike (NYSE:NKE)
22. Pfizer (NYSE:PFE)
23. Procter & Gamble (NYSE:PG)
24. Travelers (NYSE:TRV)
25. UnitedHealth Group (NYSE:UNH)
26. United Technologies (NYSE:UTX)
27. Verizon (NYSE:VZ)
28. Visa (NYSE:V)
29. Walmart (NYSE:WMT)
30. Walgreens Boots Alliance (NASDAQ:WBA)

How do you calculate the value of the Dow Jones Industrial Average?

The value of the Dow Jones Industrial Average is calculated differently from other popular stock market indexes. Most stock indexes, such as the S&P 500, give weightings to their components based on the market capitalization of each stock. In those indexes, a stock with a high market cap will make up a greater percentage of the overall value of the index than a stock with a low market cap.

However, the Dow Jones Industrial Average is, in fact, an average of the share prices of all 30 of its component stocks. When it was first founded, calculating the average was as simple as taking the 12 stocks' price per share, adding them up, and then dividing by 12. However, since then, things like new component stocks, stock splits, mergers and acquisitions, and certain other corporate actions have forced S&P Dow Jones Indices to change what's known as the Dow divisor. Rather than 12, the Dow divisor is now well below 1, which means that for every $1 in share price that a component stock moves, it adds several points to -- or subtracts several points from -- the value of the index.

How can you invest in the Dow Jones Industrial Average?

There are several ways that you can invest in hopes of matching the performance of the Dow Jones Industrial Average. The simplest way is just to buy shares of all 30 of the Dow Jones' component stocks. Because the index is weighted by share price rather than market capitalization, you don't have to worry about buying different numbers of shares of each stock in order to replicate the Dow Jones' performance.

Instead, you could buy shares of an exchange-traded fund (ETF) that tracks the Dow Jones Industrial Average. One of the largest such ETFs is the SPDR Dow Jones Industrial Average ETF (NYSEMKT:DIA). If you invest in the ETF, you basically own an interest in all 30 Dow Jones Industrials stocks. The downside to doing this rather than buying the shares individually is that you have to pay extra fees of 0.17% per year to the manager of the exchange-traded fund. Some of that goes toward covering the fund manager's expenses, while some goes to pay licensing fees to S&P Dow Jones Indices for the right to use the Dow Jones Industrial Average's registered trademark. For many investors, that's a small price to pay for the convenience of not having to buy and sell shares of 30 different stocks in quick succession every time you want to make a change to your portfolio.

Experienced investors might also purchase options or futures contracts tied to the value of the Dow Jones Industrial Average. Dow Jones Industrial Average futures are available for trading on the CME Group's (NASDAQ:CME) Chicago Mercantile Exchange, while you can purchase options on the Dow Jones through the Cboe Global Markets (NYSEMKT:CBOE) options exchange.

Other Major Market Indexes

Keep an eye on the Dow Jones Industrial Average

If you pay any attention to the stock market, it's hard not to see how the Dow Jones Industrial Average is performing on a regular basis. However, the stock index is just one of many different measures of how the overall stock market is doing, and because it only tracks 30 stocks rather than the hundreds that many of its counterparts do, it gets criticized by those who prefer that indexes cover a broader portion of the market.

Despite that criticism, the Dow Jones Industrial Average is here to stay. With its long history, it serves as a reminder of the success of the American business community -- and of the power of long-term investing in stocks.