Discussing stock and stock index movement: clarifying percentage vs. points?
As I write this, the NASDAQ Composite is at 2790.00, down 6.14 points from yesterday. To calculate the percentage, you take 6.14 and divide by yesterday's close of 2796.14 to yield 0.22%. In your example, if SPY drops from 133.68 to 133.32, you use the difference of -0.36 and divide by the original, i.e. -0.36/133.68 = -0.27%. SPY is an ETF which you can invest in that tracks the S&P 500 index. Ideally, the index would have dropped the same percentage as SPY, but the points would be different (~10x higher). To answer your question about how one qualifies a point, it completely depends on the index being discussed. For example, the S&P 500 is a market-capitalization weighted index of the common stock of 500 large-cap US public companies. It is as if you owned every share of each of the 500 companies, then divide by some large constant to create a number that's easily understood mentally (i.e. 1330). The NASDAQ Composite used the same methodology but includes practically all stocks listed on the NASDAQ. Meanwhile, the Dow Jones Industrial Average is a price-weighted index of 30 large-cap companies. It's final value is modified using a divisor known as the Dow Divisor, which accounts for stock splits and similar events that have occurred since a stock has joined the index. Thus, points when referring to an index do not typically represent dollars. Rather, they serve as a quantitative measure of how the market is doing based on the performance of the index constituents. ETFs like SPY add a layer of abstraction by creating an investible vehicle that ideally tracks the value of the underlying index directly. Finally, neither price nor index value is related to volume. Volume is a raw measurement of the total number of shares traded for a given stock or the aggregate for a given exchange. Hope this helps! "I think that the general public is conditioned to think more in terms of points rather than percentages, so that 200 points is easier to fathom than the equivalent percent. We all translate internally what this means. Of course it is less precise, but it also makes for good copy in the publishing industry (""Market Down 1000 points!"")" Points are index based.  Simple take the total value of the stocks that compose the index, and set it equal to an arbitrary number. (Say 100 or 1000)  This becomes your base.  Each day, you recalculate the value of the index basket, and relate it to the base.  So if our index on day 0 was 100, and the value of the basket went up 1%, the new index would be 101 points. For the example given, the percentage change would be (133.32 -133.68  ) / 133.68 * 100% = -0.27%  Keep in mind that an index basket will change in composition over time.  Assets are added and removed as the composition of the market changes.  For example, the TSX index no longer includes Nortel, a stock that at one time made up a significant portion of the index.  I'm not sure if a percentage drop in an index is really a meaningful statistic because of that.   It is however, a good way of looking at an individual instrument.
"The amount, reliability and frequency of dividends paid by an ETF other than a stock, such as an index or mutual fund, is a function of the agreement under which the ETF was established by the managing or issuing company (or companies), and the ""basket"" of investments that a share in the fund represents.  Let's say you invest in a DJIA-based index fund, for instance Dow Diamonds (DIA), which is traded on several exchanges including NASDAQ and AMEX. One share of this fund is currently worth $163.45 (Jan 22 2014 14:11 CDT) while the DJIA itself is $16,381.38 as of the same time, so one share of the ETF represents approximately 1% of the index it tracks. The ETF tracks the index by buying and selling shares of the blue chips proportional to total invested value of the fund, to maintain the same weighted percentages of the same stocks that make up the index. McDonald's, for instance, has an applied weight that makes the share price of MCD stock roughly 5% of the total DJIA value, and therefore roughly 5% of the price of 100 shares of DIA. Now, let's say MCD issued a dividend to shareholders of, say, $.20 per share. By buying 100 shares of DIA, you own, through the fund, approximately five MCD shares, and would theoretically be entitled to $1 in dividends. However, keep in mind that you do not own these shares directly, as you would if you spent $16k buying the correct percentage of all the shares directly off the exchange. You instead own shares in the DIA fund, basically giving you an interest in some investment bank that maintains a pool of blue-chips to back the fund shares. Whether the fund pays dividends or not depends on the rules under which that fund was set up. The investment bank may keep all the dividends itself, to cover the expenses inherent in managing the fund (paying fund management personnel and floor traders, covering losses versus the listed price based on bid-ask parity, etc), or it may pay some percentage of total dividends received from stock holdings. However, it will virtually never transparently cut you a check in the amount of your proportional holding of an indexed investment as if you held those stocks directly. In the case of the DIA, the fund pays dividends monthly, at a yield of 2.08%, virtually identical to the actual weighted DJIA yield (2.09%) but lower than the per-share mean yield of the ""DJI 30"" (2.78%). Differences between index yields and ETF yields can be reflected in the share price of the ETF versus the actual index; 100 shares of DIA would cost $16,345 versus the actual index price of 16,381.38, a delta of $(36.38) or -0.2% from the actual index price. That difference can be attributed to many things, but fundamentally it's because owning the DIA is not the exact same thing as owning the correct proportion of shares making up the DJIA. However, because of what index funds represent, this difference is very small because investors expect to get the price for the ETF that is inherent in the real-time index." First: it sounds like you are already making wise choices with your cash surplus. You've looked for ways to keep that growing ahead of inflation and you have made use of tax shelters. So for the rest of this answer I am going to assume you have between 3-6 months expenses already saved up as a “rainy day fund” and you're ready for more sophisticated approaches to growing your funds. To answer this part: Are there any other ways that I can save/ invest that I am not currently doing? Yes, you could look at, for example: 1. Peer to peer These services let you lend to a 'basket' of borrowers and receive a return on your money that is typically higher than what's offered in cash savings accounts. Examples of peer to peer networks are Zopa, Ratesetter and FundingCircle. This involves taking some risks with your money – Zopa's lending section explains the risks. 2. Structured deposits These are a type of cash deposit product where, in return for locking your money away for a time (typically 5 years), you get the opportunity for higher returns e.g. 5% + / year. Your deposit is usually guaranteed under the FSCS (Financial services compensation scheme), however, the returns are dependent on the performance of a stock market index such as the FTSE 100 being higher in x years from now. Also, structured deposits usually require a minimum £3,000 investment. 3. Index funds You mention watching the stock prices of a few companies. I agree with your conclusion – I wouldn't suggest trying to choose individual stocks at this stage. Price history is a poor predictor of future performance, and markets can be volatile. To decide if a stock is worth buying you need to understand the fundamentals, be able to assess the current stock price and future outlook, and be comfortable accepting a range of different risks (including currency and geographic risk). If you buy shares in a small number of companies, you are concentrating your risk (especially if they have things in common with each other). Index funds, while they do carry risks, let you pool your money with other investors to buy shares in a 'basket' of stocks to replicate the movement of an index such as the FTSE All Share. The basket-of-stocks approach at least gives you some built-in diversification against the risks of individual stocks. I suggest index funds (as opposed to actively managed funds, where you pay a management fee to have your investments chosen by a professional who tries to beat the market) because they are low cost and easier to understand. An example of a very low cost index fund is this FTSE All Share tracker from Aberdeen, on the Hargreaves Lansdown platform: http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/a/aberdeen-foundation-growth-accumulation General principle on investing in stock market based index funds: You should always invest with a 5+ year time horizon. This is because prices can move up and down for reasons beyond your anticipation or control (volatility). Time can smooth out volatility; generally, the longer the time period, the greater your likelihood of achieving a positive return. I hope this answer so far helps takes into account the excess funds. So… to answer the second part of your question:  Or would it be best to start using any excess funds […] to pay off my student loan quicker? Your student loan is currently costing you 0.9% interest per annum. At this rate it's lower than the last 10 years average inflation. One argument: if you repay your student loan this is effectively a 0.9% guaranteed return on every pound repaid – This is the equivalent of 1.125% on a cash savings account if you're paying basic rate tax on the interest. An opposing argument: 0.9% is lower than the last 10 years' average inflation in the UK. There are so many advantages to making a start with growing your money for the long term, due to the effects of compound returns, that you might choose to defer your loan repayments for a while and focus on building up some investments that stand a chance to beat inflation in the long term. Why would it not make more sense to invest in a handful of these   heavyweights instead of also having to carry the weight of the other   450 (some of which are mostly just baggage)? First, a cap-weighted index fund will invest more heavily in larger cap companies, so the 'baggage' you speak of does take up a smaller percentage of the portfolio's value (not that cap always equates to better performance). There are also equal-weighted index funds where each company in the index is given equal weight in the portfolio. If you could accurately pick winners and losers, then of course you could beat index funds, but on average they've performed well enough that there's little incentive for the average investor to look elsewhere.  A handful of stocks opens you up to more risk, an Enron in your handful would be pretty devastating if it comprised a large percentage of your portfolio. Additionally, since you pay a fee on each transaction ($5 in your example), you have to out-perform a low-fee index fund significantly, or be investing a very large amount of money to come out ahead. You get diversification and low-fees with an index fund. Rebalance is across asset-classes which are mutually independent [like stocks and bonds; they may be inversely correlated at times as when stocks go down, bonds go up] 80%-20% (stock-bond) split is good for a young investor [say in 30s, some suggest 110-age as a good stock allocation percentage]. Here rebalance is done when say the asset-allocation(AA) strays away more than say 3 to 5% (again just a rule of thumb). E.g. if due to a recent run-up in stocks, AA could become 85%-15%. Then you sell stocks to buy bonds to make the AA 80%-20% And since this method always sells the winner -- you automatically make gains [selling high and buying low] S&P 500 index gives decent diversification within stocks; you want a total-bond-fund to take care of the bond side of your AA. "People in this case, are large institutional investors. The ""bid ask"" spread is for ""small traders"" like yourself. It is put out by the so-called specialists (or ""market makers"") and is typically good for hundreds or thousands of shares at a time. Normally, 2 points on a 50 stock is a wide spread, and the market maker will make quite a bit of money on it trading with people like yourself. It's different if a large institution, say Fidelity, wants to sell, say 1 million shares of the stock. Depending on market conditions, it may have trouble finding buyers willing to buy in those amounts anywhere near 50. To ""move"" such a large block of stock, they may have to put the equivalent of K-Mart's old ""Blue Light Special"" on, several points below." "To calculate a sector (or index) P/E ratio you need to sum the market caps of the constituent stocks and divide it by the sum of the total earnings of the constituent stocks (including stocks that have negative earnings).  There are no ""per share"" figures used in the calculation. Beware when you include an individual stock that there may be multiple issues associated with the company that are not in the index.... eg. Berkshire Hathaway BRK.B is in the S&P 500 but BRK.A is not.  In contrast, Google has both GOOGL and GOOG included in the S&P 500 index but not its unlisted Class B shares.  All such shares need to be included in the market cap and figuring out the different share class ratios can be tricky." Market price of a stock typically trades in a range of Price/Earnings Ratio (P/E ratio). Or in other words, price of a stock = Earnings * P/E ratio Because of this direct proportionality of stock price with earnings, stock prices move in tandem with earnings. "The first thing to realize is that the type of chart you saw is not appropriate for long-term comparisons.  The vertical axis uses a linear scale, where each unit occupies the same amount of space.  This is visually misleading because the relevant information at any point in the chart is ""how much is the value going up or down?"" and ""how much"" change depends on how much the value of the investment is at that moment.  For example, if you buy something at $10 and the price changes $1, that is significant, 10%.  If you buy something at $1000 and the price changes $1, that is not so significant, only 0.1%.  The problem in that chart is that 100 Dow points occupy the same space whether the Dow is at 870 or 10800. To get a better feel for the volatility, you should use a log (logarithmic) scale.  Google has an option for this.  Using it shows:   In this chart you can see that the volatility appears much less extreme in recent years.  True, the 2006-2009 change is the largest drop, and there might be slightly higher volatility generally, but it is not nearly as extreme-looking.  The drops in 1974 and 1987 can be seen to be significant."