I have seen that Vanguard no longer has index funds that track the DJIA, but the S&P 500.

Is this because it no longer makes sense to track the DJIA? If so, why?

  • 1
    I was unaware Vanguard ever had a DJIA tracking fund. What was it's symbol? – user662852 Sep 26 '19 at 14:24
  • Actually, I have read in a book that emphasizes in index funds as one of the best investment options, and it puts an example that is Vanguard Total Stock Market. If you search it in google, it is almost identical to the DJIA. Anyway, I've been unable to find it in the Vanguard web page. – Martel Sep 26 '19 at 14:39
  • They closed the retail version, but have maintained the "Admiral" level. All this means is a $3000 minimum investment. investor.vanguard.com/mutual-funds/profile/overview/vtsax – user662852 Sep 26 '19 at 14:58
  • @Martel Vanguard Total Stock Market is VTI or VTSAX. – Dugan Sep 26 '19 at 15:20
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    @Martel: Total Stock Market is not "almost identical" to DJIA. They're highly correlated, because they share the same markets, same laws and regulations, compete with the same alternate investments, etc. But no more correlated than any other index fund in the US market. – Ben Voigt Sep 27 '19 at 1:19

Is this because it no longer makes sense to track the DJIA? If so, why?

Some reasons come to mind:

  • The DJIA consists of only 30 companies, so it is more risky since one company can make large changes in the index. Other indices have hundreds of companies, making them more diversified and less risky.
  • Th DJIA is not market-cap-weighted like the S&P 500. Market-cap weighting is good for index trackers because they rebalance automatically (if a company's price increases, it's market cap also increases, so no rebalancing is necessary). The DJIA is evenly weighted, so if a company's stock increases, its value in the index will become disproportionate, and the index must sell some off to balance out the value. This creates a lot of churn and increases transaction costs.
  • The S&P 500 contains all of the Dow 30 stocks, so there is a high degree of correlation between the two.
  • The constituents of the Dow 30 are determined by a committee of three people, not by defined criteria, so there's more possibility for human bias in the constituents (this may not make a significant difference, but it is something to consider)

The DJIA is easy to calculate (it's an arithmetic average of stock prices divided by a factor) so it is a decent measure of the market, but it's more complicated to replicate and arguably a less accurate market indicator than other indices.

  • Also DJIA (due to how it's calculated) will never accept google or amazon because it would overwhelmingly skew the index. Which means that the DJIA used to hold the 30 biggest companies it doesn't anymore. – xyious Sep 26 '19 at 19:43

S&P is more accurate measurement of the market, dow has better performance in the last twenty years though.

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