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- 1. How to invest in Dow Jones Industrial Average index funds in 2024
- 2. Where can I invest in the Dow Jones index?
- 3. How do I invest in the DJIA index?
- 4. The different ways to invest in the DJIA
- 5. How much does it cost to invest in the Dow Jones Industrial Average index?
- 6. Should I invest in the Dow Jones Industrial Average index?
- 7. FAQs
How to invest in Dow Jones Industrial Average index funds in 2024
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77% of retail CFD accounts lose money.
It only takes a few minutes to invest in the Dow Jones Industrial Average index. One of the simplest and most popular ways to invest is to buy shares in a Vanguard Dow Jones Industrial Average ETF through an online trading platform.
Where can I invest in the Dow Jones index?Copy link to section
Both Dow Jones Industrial Average ETFs and Dow Jones Industrial Average CFDs are available to invest in through eToro .
Here are three more places to buy the Dow Jones Industrial Average, ranked according to their cost, security, and features.
77% of retail CFD accounts lose money.
Buy or sell stock CFDs with Plus500. 82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
How do I invest in the DJIA index?Copy link to section
The easiest way is to sign up to a stock broker, open an investment account, and buy shares in an Dow Jones Industrial Average ETF or CFD. This guide explains how to do it:
Step 1. Sign up to eToroCopy link to section
We recommend using eToro to invest in Dow Jones Industrial Average. Sign up for a brokerage account and deposit some money. You may need to supply a form of photo ID to verify the account.
77% of retail CFD accounts lose money.
Step 2. Decide how to buy Dow Jones Industrial AverageCopy link to section
This boils down to choosing between an Dow Jones Industrial Average ETF or CFD. ETFs are generally better suited to investors who want to passively track the Dow Jones Industrial Average’s performance. CFDs offer a greater range of trading options: you can use leverage, short the index, or buy and sell it outside of trading hours.
Step 3. Invest in the Dow JonesCopy link to section
Sign into your trading account and search for the Dow Jones Industrial Average. Hit the ‘buy’ button and enter the details of your purchase, such as how much you want to spend. Hit ‘buy’ again to execute the trade.
Step 4. Monitor your investmentCopy link to section
When you buy a CFD, the trade goes through more or less instantly, and you’ll be able to see your new open position in your trading account. ETF purchases can take longer, and if you buy outside of traditional trading hours it won’t go through until the next morning.
Your trading account will show the price change in the Dow Jones Industrial Average since you bought it, so you can see your profit/loss at a glance. Use that information, along with your own research, to decide when to sell the Dow Jones Industrial Average and close your position, ideally at a profit!.
The different ways to invest in the DJIACopy link to section
As we mentioned above, there are numerous ways to put your money into the Dow Jones Industrial Average. ETFs and CFDs are the simplest options for beginners, but there are alternatives. Here’s a brief overview of each option and who it’s best suited for.
Dow Jones Industrial Average ETFsCopy link to section
An ETF (exchange-traded fund) is an investment fund traded on a stock exchange, much like a stock. Exchange traded funds can hold different assets, such as individual stocks, bonds, or commodities, or serve as a proxy for a stock market index.
An Dow Jones Industrial Average ETF is one way of investing in the Dow Jones Industrial Average. It’s simply an investment fund that mirrors the performance of the Dow Jones Industrial Average. When you buy shares in the fund, the value of your investment will rise or fall with the Dow Jones Industrial Average itself.
ETFs are ideal for new investors because they have a very low minimum investment. You can start with a few pounds and get exposure to some of the world’s largest companies. They’re also practical if you plan on trading the Dow Jones Industrial Average index, because you can buy or sell shares in the fund throughout the day.
Examples of popular DJIA ETFs
- SPDR Dow Jones Industrial Average ETF Trust (DIA)
- Lyxor Dow Jones Industrial Average UCITS ETF
- iShares Dow Jones Industrial Average UCITS ETF
Dow Jones Industrial Average index fundsCopy link to section
An index or mutual fund is an investment fund that aims to track the performance of a stock market index, such as the Dow Jones Industrial Average. It’s very similar to an ETF, in that there are low management fees and you can buy shares through your online broker.
However, there are a couple of differences. Dow Jones Industrial Average index funds are only priced at the end of each trading day, so you can buy or sell shares in the fund once per day. There may also be a higher barrier to entry, through a much larger minimum investment when you invest in Dow Jones Industrial Average index funds.
That means an Dow Jones Industrial Average mutual fund is better suited for long term investors with a higher initial budget, where the infrequent trading and barriers to entry are far less of an issue.
Examples of popular DJIA index funds/mutual funds
- ProFunds Ultra Dow 30 Fund Investor Class (UDPIX)
- Rydex Dow Jones Industrial Average Fund (RYDHX)
Dow Jones Industrial Average CFDsCopy link to section
CFDs (contracts for difference) are a way to speculate on Dow Jones Industrial Average price changes with more flexibility than if you use an ETF or index fund. A CFD is a ‘derivative’, which means it gets its value from the underlying asset – in this case the Dow Jones Industrial Average – but it’s separate from it.
As a result, CFDs can be leveraged, where you borrow money to multiply the size of the trade, or they can be used to go ‘short’, where you place a trade on the index to fall in value. You can also buy and sell them outside of regular trading hours.
All of this means Dow Jones Industrial Average CFDs offer the potential to outperform a fund that passively tracks the Dow Jones Industrial Average’s performance. Of course, you can also underperform it as well. Tools like leverage and shorting introduce a lot more risk, and are best left to experienced traders.
Dow Jones Industrial Average futuresCopy link to section
Futures contracts are agreements to buy or sell the DJIA at an agreed price on a set date in the future. Dow Jones Industrial Average futures are a means to predict how you think the index is going to perform over a set time frame, such as the next three or six months.
Most futures contracts involve leverage, so you only put up a small part of the total trade value (the margin) when you buy one. That makes futures more risky, and they require a bit more financial expertise to understand as well.
Some traders use futures as a hedge against the performance of stocks they own. For instance, if you own stocks that are part of the Dow Jones Industrial Average then you might want to short the Dow Jones Industrial Average so that you still make some money if the price falls.
Dow Jones Industrial Average stocksCopy link to section
Another way to invest in the Dow Jones Industrial Average is to buy shares in the individual stocks that the index tracks. It isn’t practical to buy every share in the index, but you can invest directly into a few of the most heavily weighted stocks in the Dow Jones Industrial Average in order to get broad exposure to its performance.
The most heavily weighted stocks in the Dow Jones Industrial Average tend to be the largest companies by market capitalisation. If you invest directly in those largest stocks, you gain exposure to the index without taking on the risk of all the underlying companies.
One reason to do this is that these larger companies with the highest market cap dominate the index anyway, so that it can give you the impression of a diversified portfolio while actually being reliant on the performance of those particular stocks.
For the Dow Jones Industrial Average index, the largest stocks you might choose to invest in are:
|UnitedHealth Group (UNH)||10.4%|
|Goldman Sachs Group (GS)||7.4%|
|Home Depot (HD)||6.2%|
|Microsoft Corp (MSFT)||4.9%|
|Honeywell International (HON)||4.2%|
|Travelers Companies (TRV)||3.6%|
The flip side of investing directly like this is that you lose the diversification and stability that comes with buying into an entire index. It requires much more hands-on management to do your own stock picking, so it’s best suited to more experienced investors.
How much does it cost to invest in the Dow Jones Industrial Average index?Copy link to section
From $0 to $5, depending on how you invest. For each option, you must consider the cost of buying the actual asset, whether that’s an ETF, index fund, CFD, or share, plus the fees associated with it.
|Instrument||Trading fee||Management fee|
|Exchange traded funds||$0-$5.99||0-0.2%|
|Index fund / mutual fund||$0-$5.99||0.1-2%|
*A fee comparison of 3 leading brokers for example purposes
ETFs and CFDs are generally the cheapest option overall, as they have low fees and a low minimum investment. Index funds and mutual funds have low fees but may have a high minimum investment. Buying individual stocks is the most expensive option in absolute terms, because the share price of a single large company is often more than $100.
All options are likely to include a trading fee, which you pay each time you make a transaction. Some trading platforms offer zero-fee trading, with others it may be a few dollars.
Then ETFs and index funds each have their own expense ratio. Expense ratios refer to an annual management fee, charged as a percentage of your total investment. Expense ratios are usually no more than 0.05%, so if you invest $1,000, you would pay $5 per year in management fees.
Should I invest in the Dow Jones Industrial Average index?Copy link to section
Yes, Dow Jones Industrial Average investing is a great choice if you’re looking for a safer investment with more price stability compared to picking individual stocks. It gives you an instantly diverse portfolio with exposure to a broad area of the stock market.
The flip side is that you have less control over which companies you invest in. An index committee decides how the index works, and you can’t pick and choose the underlying companies you like the most. The Dow Jones Industrial Average is better suited to hands-off investors, compared to those who have the skills, experience, and desire to pick their own stocks.
What are the advantages of investing in the Dow Jones Industrial Average index?Copy link to section
An index provides instant stock market diversification, where you spread your risk across a large number of underlying companies, rather than one or two. Here are some more reasons why you might want to invest in the Dow Jones Industrial Average index:
- The DOW gives you exposure to the top US companies. The DJIA index comprises the largest publicly traded companies in the United States. These businesses are considered the best and most stable in the world, and investing in the DOW index provides investors with exposure to them.
- The DJIA is stable and reliable. The Dow Jones Industrial Average is a reliable indicator of how well the US economy is performing. It has a long history of stability and consistent performance.
- DOW ETFs and funds offer good liquidity. As the DJIA is such a popular index, funds and ETFs that track it are generally large in size. This makes it easy to buy and sell shares at any time during market hours, which is difficult when investing in a smaller index.
- The DOW is a long history of good performance. Not only is the Dow Jones index stable, it is also a good performer. Since 2000, the DJIA has only really moved in one direction, up, and has returned over 200% to investors.
What are the disadvantages of investing in the Dow Jones Industrial Average index?Copy link to section
The main risk of investing in the Dow Jones Industrial Average is that all the underlying companies are related in some way, so a broader economic downturn that affected the entire country would likely affect many stocks in the index at the same time. Here are some more risks of Dow Jones Industrial Average investing.
- The DJIA is spread thinly across industries. The largest US companies belong to a few sectors, such as technology and healthcare. This means the DOW is less diverse than other indexes, such as the S&P 500, which provides a wider range of industries.
- It uses a price-weighted methodology. The Down Joines Industrial Average uses a price-weighted methodology which means some larger companies have a disproportionate impact on their performance compared to actual market cap. This can result in a skewed representation of the overall market.
FAQsCopy link to section
An ETF is a better option if you want to be able to buy and sell shares in the Dow Jones Industrial Average throughout the day. An index fund is better suited to long term investors with a larger initial sum to invest.
An ETF is the best way for a beginner to invest in the Dow Jones Industrial Average index. It’s easy to buy shares in an ETF and the costs are relatively low. You only have to pay the trading fees and a small annual management fee.
Yes, if you choose the right online broker. Not all brokers offer index investing, so make sure to find a broker that offers the Dow Jones Industrial Average index before you sign up.
The Dow Jones Industrial Average itself does not pay dividends, but many companies listed on it do. If you invest in an Dow Jones Industrial Average index fund or ETF then you will receive a percentage of the dividends paid out by those companies, based on the number of shares you own in the fund.
The SPDR Dow Jones Industrial Average ETF Trust (DIA) is the best Dow Jones Industrial Average fund. It invests in all 30 companies that comprise the DOW index.
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