It is viewed by many as a key indicator of how the stock market and US economy are doing. But because of the Dow's narrow focus on just 30 large US industrial company stocks, it is not a reliable measuring stick for evaluating overall investment portfolio performance. Your Annuity Board retirement account probably contains a wide variety of assets. Each of these asset classes has different performance expectations and patterns. Research analysts throughout the investment industry have developed indexes to track these diverse market segments.
Indexes represent the average of their particular area.
These indexes are used as benchmarks against which the performance of investment funds can be measured. It is very important to use an index that most closely approximates the pool of securities a fund manager selects - compare apples to apples. Indexes are unmanaged and no investment expenses are figured into their performance. Investment funds, both index and actively managed funds, have management and administrative expenses that affect the funds' total returns. Therefore, index performance will be slightly different from the funds that are compared against them.