We will now look at a group of equities known as an index. To create an index, we take individual prices, multiply them by a weighting methodology and create an index level. There are of course, a number of complexities in how indexes are calculated, including adjustments for dividends, reweightings, and other adjustments such as rights issues, special dividends, et cetera. However, we will keep it simple and only discuss the basic weighting methods, equal weight, price weight, and market cap weight. It's important to highlight that the weight method you choose will heavily impact your returns. In fact, the weighting methodology is your asset management decision. This is the reason fundamentally weighted indexes, which we will discuss in a moment, have grown in popularity.

Indexes represent a given security market segment or asset class. In the US we have the Dow Jones Industrial, the S&P 500, the NASDAQ Composite, and the Russell 2000 as examples. Internationally, we have the FTSE in the UK, the DAX in Germany, the Hangang in Hong Kong, and the Nikkei in Japan An example of a global index would be the MSCI, the Morgan Stanley Capital International. Other indexes are sector or industry specific, style specific, total return specific or multi-Market. Sector indexes represent and track different economic sectors such as consumer goods, energy, finance, healthcare, and technology on either a national, regional, or global basis. Sector indexes are organized as families. Each index within the family represents an economic sector. Typically, the aggregation of a sector index family is equivalent to a broad market index. Multi-market equity indexes usually comprise indexes from different countries and are designed to represent multiple security markets.