Stock market index — what is it? WIG20, S&P 500 and others
What is a stock market index? How WIG20, S&P 500, MSCI World work and why track them. Simple explanation for beginning investors.
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
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