Stocks Quest Lesson9


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Stocks Quest Lesson9

  1. 1. 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 Sectors 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* WEBS-Japan EWJ MSCI Japan WEBS-U.K. EWU MSCI U.K. Data: American Stock Exchange Activities: stocksquestlesson9-100107080154-phpapp01.doc
  2. 2. 1. Go to Yahoo! Finance 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 how much? 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. stocksquestlesson9-100107080154-phpapp01.doc