Stock market index — what is it? WIG20, S&P 500 and others

What is a stock market index?

A stock market index is an indicator tracking the value of a selected group of stocks. It shows how a given market or sector is performing — rising, falling, or standing still.

Imagine a thermometer: it doesn't measure the temperature of every air molecule, but gives an overall picture. Similarly, a stock market index measures market "temperature."

Most important indices

Polish

• WIG — broadest WSE (Warsaw Stock Exchange) index, includes all companies
• WIG20 — 20 largest and most liquid companies (PKO BP, Orlen, KGHM...)
• mWIG40 — 40 medium-sized companies
• sWIG80 — 80 small companies

Global

• S&P 500 — 500 largest American companies (Apple, Microsoft, Amazon...)
• MSCI World — ~1,500 companies from developed markets worldwide
• MSCI Emerging Markets — emerging markets (China, India, Brazil...)
• FTSE All-World — practically the entire global stock market
• DAX — 40 largest German companies
• Nikkei 225 — Japanese stock market

How is it calculated?

Most indices are capitalization-weighted — the larger the company, the greater its impact on the index. That's why Apple (~7% of S&P 500) affects the index much more than smaller companies at the bottom of the list.

Why do investors need indices?

1. Benchmark

The index is a reference point. If your portfolio earned 8% and WIG20 earned 12% — the market beat you. Maybe better to buy an index ETF?

2. ETFs and index funds

By buying an S&P 500 ETF (e.g., Vanguard S&P 500 — VOO), you automatically invest in 500 companies. You don't need to choose individual stocks.

3. Market sentiment pulse

S&P 500 falling 3% in one day = something's happening in the world. Indices are the fastest signal.

Price index vs total return index

• Price index (e.g., WIG20) — considers only stock price changes
• Total return index (e.g., WIG20TR) — also includes dividends. This is a better measure of real return

When comparing your results, use total return indices.

How Freenance can help

Freenance compares your portfolio performance with benchmarks — e.g., MSCI World or WIG20. You'll see if your investment decisions add value above market performance, or if you'd be better off just buying an index ETF.

👉 Compare your portfolio with the market — freenance.io