StocksQuest Online Stock Simulation Game
Lesson #9 What are the Indices of Investing?
Background: According to Lipper Analytical, in the past 10 years, only 21% of
the mutual funds beat the stock market, measured by the Standard and Poor’s
500 index. In other words, investors are better off investing in stock indices or
index funds to avoid paying high management fees and transaction costs to
mutual funds companies.
Traditionally, stock indices such as the Dow Jones Industrial Average or
Standard and Poor’s 500 have measured the change of direction and magnitude
of the general stock market. Nevertheless, a new wave of investing in stock
indices allows investors to trade indices like stocks at a low cost. For those who
don’t have much time to research stocks or to build a diversified portfolio with a
small amount of capital, investing in stock indices is an attractive option.
There are three common financial names in the indices of investing. They are
Spiders, Diamonds, and WEBS*. Students can trade them just like regular
stocks. Whether students want to buy and sell a broad market index or one
industry, they can look at this new wave of investments that is available to trade
in the American Stock Exchange.
Index Name Symbol Index Tracked
Spiders SPY S&P 500
Diamonds DIA Dow 30 Industrial
Nasdaq-100 QQQ Nasdaq-100
Energy Select Spider XLE Energy select
Financial Select Spider XLF Financial
Technology Select Spider XLK Technology
Internet Holders HHH Merrill Lynch 19 Internet stocks
WEBS-Japan EWJ MSCI Japan
WEBS-U.K. EWU MSCI U.K.
Data: American Stock Exchange
1. Go to Yahoo! Finance http://finance.yahoo.com/ to get detailed quotes for SPY and
select on the left hand toolbar, the interactive chart. Then, click on the word “compare”
and check “S&P 500”. This will give you a comparison chart with the U.S. overall stock
market measured by the broad S&P 500 index for that day. Then click on the button at
the bottom of the graph that says “1Y” to see the comparison for the whole year.
Looking at these two graphs, does the SPY match closely with the S&P 500 index on the
chart? How can you tell?
2. On the same Web page, enter DIA in the text box on the top and click the Get Quotes
button. Can you tell if the DOW performed better or worse than the S&P 500 index in
the past year according to the chart and how much better or worse?
3. Enter QQQQ and click the Get Quotes button again. Can you tell if the Nasdaq 100
performed better or worse than the S&P 500 index in the past year, which one did and by
4. Repeat the similar procedures for the sector indices, XLE, XLF, XLK, and HHH.
5. Repeat the similar procedures for the WEBS, EWJ and EWU.
Now, you should get a feel of how those indices shown in the above table performed
compared with the overall U. S. stock market.