In part one, I explained how the S&P 500 index (^GSPC) and most index tracking ETF's are weighted. The weighting is based on a company's market capitalization, which means that since Apple Inc. (AAPL) is easily the largest company in the world, it carries the largest amount of weight within these investment vehicles. Furthermore in the past I explained how this amount of exposure to Apple may not be a good thing.
But, with Apple recently being added to the Dow Jones Industrial Average (^DJI) investors now have an index to park money and not feel over exposed to Apple due to its size. While the S&P 500 weights companies by its market cap, the Dow weights companies by its share price. Over the years, a number of analysts and market experts have said this is one of the Dow's major flaws and to an extent I would have to agree. But, because Apple is so much larger than all of the other companies within the market, I am very much in favor of this share price weighting format. Continue reading "Apple + Dow Jones = Better Apple Exposure (Part 2)"