What is an Equity Index?
The following explanation of equity indices is
for information purposes only and is not a recommendation
or endorsement of any specific index. This general information
is designed only to provide a basic understanding of
an equity index. Equity Indexed Life Insurance policies
do not directly participate in any stock or equity investments
(1).
An equity index or stock index is a diversified collection of stocks whose value is a benchmark for the overall movement of a given market. An equity index is used as a tool to represent the characteristics of its component stocks, all of which bear some commonality such as trading on the same stock exchange, belonging to the same industry, or having similar market sizes.
The Dow Jones Industrial Average, NASDAQ-100 Index®, and Standard & Poor’s 500® indexes are 3 of the largest and most recognized indices in the world. They are the most regularly quoted equity indices and include some of the most respected listed companies in their respective industries.
Dow Jones Industrial Average (DJIA)
The Dow Jones Industrial Average (DJIA) is the most widely used and the best-known indicator of the overall condition of the U.S. stock market. It is a price-weighted average of 30 actively traded blue chip stocks of primarily industrial companies. The 30 stocks are chosen by the editors of the Wall Street Journal (which is published by Dow Jones & Company), a practice that dates back to the beginning of the century.
The DJIA was officially started by Charles Dow in 1896, at which time it consisted of only 11 stocks. The Dow is computed using a price-weighted indexing system, rather than the more common market cap-weighted indexing system. The index is calculated by adding up the prices of all the stocks in the index and then dividing by the number of stocks in the index.
S&P 500 Index®
The Standard & Poor's 500® is a basket of 500 widely held stocks. The S&P 500 index is weighted by market value, and its performance is considered to be representative of the stock market as a whole.
The S&P 500 index was created in 1957 and it provides a broad snapshot of the overall U.S. equity market. In reality more than 70% of all U.S. equity is tracked by the S&P 500. The index selects its companies based upon their market size, liquidity, and industry sector. Most of the companies in the index are established mid to large size corporations. Most experts consider the S&P 500 one of the best benchmarks available to judge overall U.S. market performance.
NASDAQ-100 Index®
The NASDAQ-100 Index is one of the most frequently used “technology” indices. It is designed to track the performance of a market consisting of the 100 largest and most actively traded non-financial domestic and international securities listed on The NASDAQ Stock Market. Because it tracks stocks traded on the NASDAQ, it is often considered a technology indicator despite the fact that many healthcare, biotech, and service issues trade there as well. Though it was introduced in 1985, the NASDAD-100 index was formally launched near the height of the Internet bubble in March of 1999. It has quickly become the most actively traded index on the market.
Equity-Indexed Life Insurance and Equity Index Selections
The S&P 500 Index® (excluding dividends), is currently the only index account option available with most insurance companies offering indexed life insurance. However, there is one company in the marketplace today that offers multiple index options that include the S&P 500 Index® (excluding dividends), the Dow Jones Industrial Average (DJIA) and the NASDAQ-100 Index®. With the addition of multiple equity index selection options, policyholders can have their choice of indexed account allocations. They can allocate premiums to one or more indices each time a transfer is made from the fixed to the indexed accounts. Multiple index selections allow policyholders to diversify their index selections which may provide for a higher interest credit if one index growth rate is up while another is down.
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(1) The S & P 500 (Standard and Poor’s Composite
Price Index) is composed of 500 commons stocks representing
major U.S. industry sectors.
“
Standard and Poor’s®,” “S & P®,” “S & P
500®,” “Standard & Poor’s 500,” and “500” are
trademarks of The McGraw-Hill Companies, Inc.
(2) “Dow Jones” and “DOW JONES INDUSTRIAL
AVERAGE (DJIA) COMPOSITE STOCK INDEX” are service
marks of Dow Jones & Company, Inc.
This product is not sponsored, endorsed, sold or promoted
by Standard & Poor’s and Standard & Poor’s
makes no representation regarding the advisability of
purchasing such a policy.
(3) The NASDAQ-100®, NASDAQ-100 INDEX® and NASDAQ® are
registered trademarks of the NASDAQ Stock Market Inc.
(which with it affiliates are the “Corporations”).
This product has not been passed on by the Corporations
as to their legality or suitability. This product is
not issued, endorsed, sold or promoted by the Corporations.
THE COPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY
WITH RESPECT TO THIS PRODUCT. THE INDEX DOES NOT INCLUDE
DIVIDENDS PAID BY THE UNDERLYING COMPANIES.
