When it comes to personal finances, investing, and the markets, everyone has questions. Some are basic, others more complex, but all are important. Yet, how often do we hesitate to ask?

Maybe it’s because we feel we should already know the answer. Perhaps we’re worried the question might seem too simple or even embarrassing. But let me tell you something: there’s no such thing as a bad question when it comes to your finances.

As a financial advisor, I’ve been asked everything from “What does the stock market even do?” to “How can I plan for my retirement while still paying off debt?” Over the years, I’ve realized that the most meaningful conversations often start with a question someone was initially afraid to ask.

That’s why I’m thrilled to introduce a new blog series: "Questions You Were Afraid to Ask." Each month, we’ll tackle a common question that investors and individuals often ponder but hesitate to ask. These blogs will be your chance to explore the “whys” and “hows” behind financial concepts in an approachable, jargon-free way.

Let’s get started!

Questions You Were Afraid to Ask #1:
What's the Difference Between the Dow, S&P 500 and NASDAQ?

When you purchase a bond, you are essentially loaning a company, government, or organization money. When you buy stock, you are purchasing partial ownership in a company. For this reason, stocks are equity investments while bonds are debt investments. Before we answer Question #3, let’s examine how each type works. 

Understanding Indexes

The Dow, S&P 500, and NASDAQ Composite are all indexes. An index tracks the performance of a group of securities, such as stocks or bonds. Indexes serve as benchmarks, helping investors measure how specific segments of the market are performing over time.

• What sets these indexes apart is what they measure and how they’re structured. Here’s a closer look:.

The Dow Jones Industrial Average (The Dow)

The Dow is perhaps the most famous index. It tracks 30 of the most prominent companies in the U.S., such as Apple, Coca-Cola, and Walmart. These companies represent major industries, making the Dow a useful—albeit narrow—indicator of the stock market’s performance.

However, because the Dow only includes 30 companies, it’s not the best snapshot of the overall economy. Instead, it reflects how large, established companies are doing. Despite its limitations, the Dow’s iconic status ensures it receives significant media attention.

The S&P 500

The S&P 500 measures the performance of 500 of the largest publicly traded companies in the U.S. It’s much broader than the Dow, encompassing a wide range of industries. As a result, the S&P 500 is often considered a more reliable indicator of the economy’s overall health.

Think of the S&P 500 as a thermometer for the market—it tells you how well large-cap companies are performing on average. Many investors use it as their primary benchmark.

The NASDAQ Composite

The NASDAQ Composite tracks nearly all the companies listed on the NASDAQ Stock Exchange. What makes it unique is its heavy focus on technology and innovation. Companies like Tesla, Amazon, and Microsoft carry significant weight in this index.

Because of its tech focus, the NASDAQ tends to be more volatile than the Dow or S&P 500. When tech stocks soar, the NASDAQ often leads the charge. Conversely, when the tech sector struggles, the NASDAQ feels the brunt of the impact.

Other Important Indexes

While the Dow, S&P 500, and NASDAQ Composite are the most widely recognized, there are other indexes worth noting:

• Russell 3000: This index represents nearly the entire U.S. stock market, covering 3,000 of the largest publicly held companies.
• S&P/TSX Composite: Canada’s equivalent to the S&P 500, tracking the 250 largest companies listed on the Toronto Stock Exchange.
  

Why Do Index Values Differ So Much?

One common question is why these indexes have such vastly different values. For example, the Dow’s value is always much higher than the S&P 500—even though the S&P includes many more companies. The answer lies in how the indexes are calculated. (Spoiler: It has to do with something called weighted averages.)

We’ll cover that in next month’s post!

Your Questions Are Welcome

While we’ve got a list of topics planned, we also want to hear from you. What’s a question you’ve been hesitant to ask about your finances? What’s a term or concept you’ve always wanted someone to explain? Let us know—because this series is for you.

So, welcome to Questions You Were Afraid to Ask! Together, let’s turn those uncertainties into understanding and those questions into confidence.