What Is the Dow Jones Industrial Average?
The Dow Jones, or Dow Jones Industrial Average (DJIA), is a market cap weighted stock market index. The Dow includes stocks of 30 large US companies.
Alongside the S&P 500, The Dow is one of the most referred to indicators of American equity performance. Some companies included in The Dow are Apple and Walmart.
The Dow Jones Industrial Average is not to be confused with Dow Jones and Company, an American publishing and financial information firm that publishes the DJIA.
Dow Jones History
The Dow Jones is the second oldest stock market index after the Dow Jones Transportation Average and was created on May 26th, 1896. The Dow Jones was founded by Charles Dow, alongside Edward Jones and Charles Bergstresser. The name of the index was derived from the names of two of the co-founders.
At the outset, The Dow consisted of only 12 industrial stocks listed below:
- American Cotton Oil Company
- American Sugar Company
- American Tobacco Company
- Chicago Gas Company
- Distilling & Cattle Feeding Company
- General Electric
- Laclede Gas Company
- National Lead Company
- North American Company
- Tennessee Coal, Iron and Railroad Company
- U.S. Leather Company
- U.S. Rubber Company
Today the index represents 30 stocks from various sectors, excluding transportation and utilities, which I have listed at the bottom of the article.
Dow Jones Returns
Since The Dow Jones was founded, it has attained an average compound annual growth rate (CAGR) of 5.44%, or 10.15% including dividends.
To give you an idea of the compounding effect the DJIA has had overtime, I will provide some stats.
$10,000 invested in 1896 would be $6,407,055 today, after 122 years of compounded growth.
For a more relatable time-frame, consider the following scenario:
An 18-year-old would like to start building a retirement fund and decided to invest $10,000 and no more until retirement.
Their initial $10,000 investment would have grown to $940,311 by the time they turned 67 years old, whilst attaining average historical Dow Jones returns.
Although this time frame is lengthy, the CAGR achieved is impressive nonetheless. Including dividends, at this rate, you would have doubled your investment every 7.09 years.
Think about that for a second.
Dow Jones ETFs
I will now explore one of the biggest Dow Jones ETFs available.
SPDR® Dow Jones® Industrial Average ETF
The (DIA) or SPDR Dow Jones Industrial Average ETF is a great Dow Jones ETF. The fund, as with other index funds, has a minimal annual expense ratio of 0.17%.
The DIA was founded on the 14th of January 1998 and currently has an AUM (assets under management) of $US20.87 billion.
From inception, until the same day in 2018, the fund has achieved a CAGR of 7.68%. With a dividend yield of 2.07% for the trailing twelve months (TTM).
Together, this equates to a CAGR of 9.75% over the past twelve months.
Dow Jones Companies
Here is a list of the 30 Dow Jones companies that can be found at CNN, as of Feb 6th, 2019.