Why the Dow Is a Dumb Index
The Dow Jones industrial average is hopelessly archaic.
The Dow Jones industrial average is hopelessly archaic. When it was created in 1896 with just 12 stocks, its chief selling point was that it could be quickly calculated using only pencil and paper. Today, the Dow consists of 30 large companies, chosen by editors of the Wall Street Journal.
The small number of stocks is one shortcoming. By contrast, other important benchmarks of the U.S. stock market contain 500 stocks (Standard & Poor's 500-stock index), 1,000 stocks (Russell 1000) and about 5,000 (Wilshire 5000).
Moreover, Journal editors tend to add companies after they've passed their prime, giving rise to the argument that entering the Dow is more curse than blessing. Over the past ten years, new Dow stocks lost an average of 20% in the first year after their inclusion. Microsoft is 38% below its level when it was added in late 1999. American International Group, which entered in 2004, is already out of the Dow. Bank of America is off 58% since joining in early 2008.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The Dow's biggest fault is that it weights stocks according to share price rather than market capitalization. As a result, a 1% move in the price of IBM, which closed at about $120 in mid August, counts about six times as much in the Dow as a 1% change in Intel, which closed at $19, even though IBM's market value is only 51% greater than Intel's.
Gus Sauter, chief investment officer at the Vanguard Group, says fund managers don't pay attention to the Dow. "If you're trying to get a handle on what the market is doing, you'll look at the S&P 500 or a total-market index." Perhaps the Dow's biggest accomplishment is that, warts and all, it has retained its status as the public face of the U.S. market.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

-
3 Ways to Stretch the 2026 Social Security COLA For Your BudgetThree steps retirees can take to stretch the Social Security COLA to fit their budgets.
-
How to Keep Your Charitable Giving Momentum Going All YearInstead of treating charity like a year-end rush for tax breaks, consider using smart tools like DAFs and recurring grants for maximum impact all the year.
-
Uber Takes Aim at the Bottom Lines of Billboard LawyersUber has filed lawsuits and proposed a ballot initiative, in California, to curb settlements it claims are falsely inflated by some personal injury lawyers.
-
Dow Slides 427 Points to Open December: Stock Market TodayThe final month of 2025 begins on a negative note after stocks ended November with a startling rally.
-
Stocks Extend Win Streak on Black Friday: Stock Market TodayThe main indexes notched wins in Friday's shortened session, with the blue-chip Dow Jones Industrial Average closing higher on the month.
-
Dow Adds 314 Points to Thanksgiving Rally: Stock Market TodayInvestors, traders and speculators enjoy the best Thanksgiving Week gains for the major stock market indexes in more than a decade.
-
Dow Gains 664 Points as Rate-Cut Hopes Rise: Stock Market TodayMarkets are pricing in higher odds for a December rate cut, fueling a major rally in stocks ahead of the Thanksgiving holiday.
-
Nasdaq Rises 2.7% as Musk Tweets TSLA Higher: Stock Market TodayMarkets follow through on Friday's reversal rally with even bigger moves on Monday.
-
Dow Soars 493 Points in Fed-Fueled Bounce: Stock Market TodayNew York Fed President John Williams struck a dovish tone Friday, which eased Wall Street's worries over a potential December pause.
-
Dow Erases 717-Point Gain to End Lower: Stock Market TodayThe main indexes started the day with solid gains, but worries of an AI bubble weighed on stocks into the close.
-
S&P 500 Snaps Losing Streak Ahead of Nvidia Earnings: Stock Market TodayThe Dow Jones Industrial Average also closed higher for the first time in five days, while the Nasdaq Composite notched a win too.