Friday, February 10, 2012

Know the Index

In a certain period of time we should review and evaluate investments that we have. Various events - both positive and negative - will ultimately affect the level of investment returns earned by investors.

A variety of critical questions to be answered so that investors really know whether the investment has been effective or not. Some questions to ask include: What is my return on investment is sufficient? How effective investment strategies that have been executed? From the answers obtained, investor will know that their investment strategy still on the right track or not. Thus investor will have a solid basis for better investment decisions in the future.

To answer these questions it would need a benchmark or reference to the objective as a comparison of the returns from investing activities was run. One of the measurement tools of objective comparison is already available in the market and can be accessed by investors : index. Yes index, let us discuss more about the index in terms of investment.

Know the Index
In capital markets and finance, we know the term stock index, although index is not monopolized by stock market, but also used in many other markets such as index funds at the bond market and the forex market. It is actually not surprising because the first index is used in finance and capital markets namely the stock index.

Charles H. Dow - a financial pages journalist - is the first person to introduce the use of index to monitor the prices of American stocks in 1896. The introduction of the index was the forerunner of the Dow Jones Industrial Average (DJIA) aka dow jones index, a stock price index is referred to by many of the world's financial players to date. Other popular index is nikkei index .

The index itself is a statistical indicator that shows the size change of a particular object. Stock index will give an overview of the size of price changes in the stock market in a given period. An overview of how large the bond market moves up or down can also be obtained by observing the size of the change in bond price index figures. An index number is generated from a series of calculations to link today's prices with prices in the days before, so it indicated that the price today is higher or lower than the previous day.

By combining the methodology of calculation of index with a choice of capital markets and financial instruments are included in the calculation, then the index is expected to provide an accurate picture of market conditions and direction of movement of the cutting edge of an investment instrument.

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