How do I Invest in Dow Jones Stocks?

By: Steven Melendez | Reviewed by: Ashley Donohoe, MBA | Updated May 03, 2019

The Dow Jones Industrial Average is a well-known stock market index that tracks the stock market performance of 30 major U.S. companies. All of the companies on the list are publicly traded, meaning their stock is available through a stock brokerage of your choice or sometimes even directly from the companies. You can also buy index funds that automatically track the performance of various major market indexes, including the Dow.

Understanding the Dow Jones Average

The Dow Jones Industrial Average is one of the most watched stock market indexes of the world. It's computed based on the share prices of 30 major U.S. companies. It's not a traditional average. Instead, it's organized so that a $1 move in any company's stock price will shift the Dow average by the same degree.

The Dow, as it's commonly abbreviated, is often watched as an indicator of the market's performance as a whole, and when it crosses a major threshold, such as 10,000 during the dotcom boom of the late 1990s or 20,000 more recently, it's seen as a milestone for the overall stock market.

Companies currently in the Dow Jones Industrial Average include household names like Walt Disney, Coca-Cola, IBM, Home Depot, Nike and Apple.

Investing in Dow Companies

Since every company on the Dow Jones Industrial Average is publicly traded, you can look up the Dow Jones list of companies and buy stocks in any of them. Any stock brokerage firm will be able to help you make the stock purchase, so shop around for one with a level of customer service and a commission structure that you like.

Remember to take into account the commissions that brokerages charge when you're deciding whether to buy or sell stocks, since they can eat into your profits or add to your losses. Some online brokerages offer commission-free trading for some or all trades, which may affect your investment decisions.

Don't Forget the Dividends

Many Dow Jones Industrial Average stocks pay dividends, which are payments from the companies to shareholders. They can impact how much you make by owning the stock on top of price fluctuations between when you buy and sell. Use an online payout ratio calculator to figure out how much of a company's income it pays in dividends. Also look up the company's dividend yield, which is its dividend payments for a year divided by its stock price, when making your investment decisions.

As with any investment decision, research the companies in the Dow before deciding to trade in their stock. You can study media and analyst reports, information available through your brokerage and information in the companies' public filings. Those are generally available through brokerage online portals, through the companies' own investor relations websites and through the Securities and Exchange Commission.

Direct Stock Purchase Plans

Some companies enable you to buy their stock directly from them without using a traditional broker. In some cases, this may be a better deal than investing with a broker, but you should make sure to compare fees and charges involved with the various options, as well as take note of any restrictions on when you can buy or sell shares. If you already have a brokerage account, it could be beneficial to investigate whether it's worth having shares in separate companies managed through a separate account.

Many direct stock purchase plans allow you to automatically reinvest dividends in more of the company's stock.

If you're employed by a company that's part of the Dow, or by any other publicly traded company, you may have special opportunities to purchase the stock through your employer, potentially as part of a retirement plan. See what's available to you through your workplace and how those options compare to other investment opportunities.

Buying Dow Index Funds

If you anticipate the Dow Jones Industrial Average as a whole is going to rise, buying an index fund that tracks the companies in the index could be an appealing option. An index fund is an investment vehicle that tracks stocks according to a particular formula, like tracking all the companies in a well-known stock market index. Since index funds don't need as much human expertise to pick stocks, they often charge lower fees than traditional, actively managed mutual funds.

Index funds will usually pass the dividends paid by the underlying stocks on to investors, and you can choose whether to receive them directly as payments or reinvest them in more shares of the fund. You will generally owe tax on dividends the year you receive them, whether you reinvest them or not.

Many index funds that track the Dow Jones Industrial Average are exchange-traded funds, meaning they're bought through most brokerages using a ticker symbol, similar to buying stock. If you're interested in investing in a Dow ETF, shop around for one with a fee structure you like offered by a company you trust.

Dow Jones Investing and Futures

If you happen to take a look at financial news online or on television when the U.S. markets are closed, you may see references to Dow Jones Industrial Average futures. These investment vehicles effectively enable you to bet on how the average will move up or down in the future, letting you make money if the Dow moves in the direction you predict.

Futures contracts are traded during longer hours than stocks themselves, so investors buy and sell futures in reaction to market-related data released after hours in order to anticipate changes in the market. That's why they're sometimes examined by stock market watchers when the markets are closed.

Futures are often bought and sold through a futures broker, but keep in mind that the futures market can be more complicated than the stock market itself. Make sure you understand the terms of any financial instruments you're dealing in, and that you don't put more money into the market than you can afford to lose.

Other Stock Market Indexes

The Dow Jones Industrial Average isn't the only stock market index. The Standard & Poor's 500 tracks a group of 500 major U.S. companies and is also watched as a bellwether of the U.S. stock market as a whole. The Russell 3000 index tracks an even larger group of U.S.-traded companies, and the Russell 2000 tracks the bottom 2,000 stocks in that group as sorted by market capitalization, or total stock market value.

Tech investors often keep an eye on the Nasdaq Composite Index, which tracks companies on the Nasdaq stock exchange. It's known for being a home to companies in digital technology and other burgeoning fields.

Other countries' stock markets have their own popular indexes used to measure market performance, like the Financial Times Stock Exchange 100 index in the U.K., abbreviated to FTSE and pronounced "footsie." Specialized indexes also exist to track stocks in particular industries, from pharmaceutical firms to real estate companies.

Making Your Investment Decision

When it comes to investing in Dow Jones stocks, you have options. Look up stocks in any index to purchase directly, based on what you expect to be the best performing stocks in a particular sector of the economy or on a particular exchange, or invest in index funds that track a segment of the economy as a whole.

Tip

  • The DJIA might be the most well-know Dow stock index, but it's not the only one. The Dow also offers the Dow Jones Transportation Average and the Dow Jones Utilities Average. When combined, these three indexes make up the Dow Jones Composite Average.

Warning

  • All investments in stock involve risk. There are no guarantees and you could lose some or all of your investment.

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About the Author

Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.

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