So you’ve discovered Appreciate and are really interested in US investing but confused about where to begin? Stocks and securities listed in the popular US indices could be a great place to start. Read on to find out more about US indices and how they differ from Indian indices.
Foreground:
Indices from any part of the world contain a collection of securities that reflect the condition of the market in a specific region or sector. Companies that want their stocks to be included in indices must meet certain criteria set by the index provider. Some indices may even select securities based on two or more criteria.
Popular Indices tracking US market shares often have these criteria. Though, the exact criteria may differ on the index, and not all criteria are included in this list:
- Market Capitalization
- Liquidity
- Financial Performance
- Dividend Yield
- Sector Representation
Index funds are ideal for those who have no experience investing in the US stock market or who don’t have the assistance of US stock brokers or advisors.
Why So?
- Diversification: Like all indices around the world, US indices feature companies across different sectors and market sizes. Diversification can shield investors from substantial losses arising from unfamiliarity with the US market.
- Global Exposure: US indices feature many companies of American origin that are operational globally. This hedges investors against US-specific market downturns, as there are chances of the same company recouping its financial performance elsewhere. Furthermore, there are many global and regional indices overseen by American index providers, like the MSCI, that allow the ownership of stocks from foreign companies.
- High Trading Volume: The US is amongst the top countries in the world that are interested in stock trading. This characteristic, coupled with the high trading volume inherent to all indices, makes it apparent that there’ll always be someone available to buy US stocks when you want to share your holdings at a specific price.
- Noticeable Price Trends: The initiation of some indices, like the DJIA, dates back to the 19th century! Apps like Appreciate may feature historical data of different US indices. For beginners, this could translate to a higher probability of correctly predicting how a certain market will perform in response to an event.
How do US Indices Differ from those in India?
1. Origin of Stocks: US indices primarily feature securities from American companies, while Indian indices feature securities from companies of Indian origin. Exceptions are global and regional indices, which feature companies from different countries.
2. Regulation: Most American indices are regulated by American exchange houses like the NYSE and Nasdaq, which set listing standards and rules. On the other hand, Indian indices are regulated by Indian exchange houses like the BSE and NSE.
3. Types of Investors: Those making a US stock investment fall under different investor classifications, such as institutional investors and foreign investors. In contrast, most investors in India are retail investors.
What did we learn?For those unfamiliar with the US market, investing in US stocks of companies listed in indices can be a very thoughtful step. Indices allow diversification and allow investors to identify market behaviour through past data.