When new investors think about “the stock market” as a whole, they’re actually thinking of one of the major indices. The two major ones are the S&P 500 and the Dow Jones Industrial Average (DJIA). In a sense, these major indices are representative of the stock market as a whole. They track the performance of its most prominent participants. As a result, many new investors often find themselves asking how to invest in the Dow Jones or another major index.

Because an index is an average of stocks, you can’t buy shares in it. However, you can buy shares in funds specifically designed to track the behavior of an index. Case in point, there are ways to mimic the returns of the DJIA by purchasing shares in a fund that mirrors it.

If you’re an investor looking to index your portfolio, here’s what you need to know about how to invest in the Dow Jones Industrial Average. Below, we’ll cover a few different ways you can use the index to suit your investment style.

Learning how to invest in the Dow Jones.

Replicating the DJIA in Your Portfolio

Looking for a pure way to invest in the Dow Jones? You could always purchase shares of the 30 companies represented in the index. While this will give you a duplicate representation of the index and its performance, it’s not very cost effective. Most companies represented in the DJIA have share prices well-over $100. This means spending thousands of dollars to replicate the index in your own portfolio. It’s much more affordable to invest in an ETF that holds shares.

Buying Indexed ETFs

The simplest and most accessible way to invest in the Dow Jones and other indices is through ETFs that track the performance of each index. Specifically, the SPDR Dow Jones Industrial Average ETF (DIA) gives you an exact replication of the DJIA, at a ratio of 1/100 of the index price. This does two things. It simplifies investing in the DJIA and removes the barrier to entry of the index’s current price (+$33,100).

The DIA will move exactly as the DJIA does, replicating its gains and losses because it’s constituted exactly the same way. Those wondering how to invest in the Dow Jones will find the DIA a simple answer that offers them the exposure they’re looking for.

Leveraging the Dow Jones

If you’re really bullish on the DJIA as an index and believe the market will perform strongly, you can also leverage the Dow Jones. The ProShares Ultra Dow30 (DDM) ETF mirrors the DJIA’s composition, but seeks to replicate two times the performance of the index daily. To do this, the fund actually uses derivatives against underlying securities represented in the index.

While it could offer great returns in theory, DDM is also subject to more volatility and losses when the DJIA drops. Moreover, this fund carries a 0.95% expense ratio that can eat into profits based on the monthly returns of the DJIA.

Keep reading to learn more on how to invest in the Dow Jones.

Tracking the “Dogs of the Dow”

The “Dogs of the Dow” is an indexing strategy that focuses on the top 10 dividend-yielding stocks in the DJIA. The idea is that holding these stocks will keep the investor aligned with the relative movements of the DJIA. For example, this is done while allowing them to reap the advantage of high-paying dividends that increase total return. Studies have shown that this strategy actually ends up beating the DJIA’s total return over a decade.

There are two ways to invest in the Dogs of the Dow. The first is through an ETF like the Invesco Dow Jones Industrial Average Dividend ETF (DJD). In addition, this ETF includes the dividend-payers of the DJIA in one convenient fund.

The second way to capitalize on the Dogs of the Dow is to buy and hold shares of the top 10 dividend stocks represented in the index. As of 2022, these companies include:

  • Dow Inc. (NYSE: DOW), 4.94%
  • Verizon (NYSE: VZ), 4.93%
  • IBM (NYSE: IBM), 4.91%
  • Chevron (NYSE: CVX), 4.57%
  • Walgreens Boots Alliance (NYSE: WBA), 3.66%
  • Merck (NYSE: MRK), 3.60%
  • Amgen (NYSE: AMGN) 3.45%
  • 3M (NYSE: MMM), 3.33%
  • Coca-Cola (NYSE: KO), 2.84%
  • Intel (NYSE: INTC), 2.70%

The cost of compiling these companies in your portfolio is significantly cheaper than learning how to invest in the Dow Jones. However, it’s often more affordable to take the ETF route for roughly the same benefit.

Shorting the Dow Jones

Want to learn how to invest in the Dow Jones in a bear market? It’s possible to short the Dow Jones via particular funds that mirror the inverse of the index’s behavior. The ProShares Short Dow 30 ETF (DOG) moves opposite the DJIA. This allows investors to invest against the index, gaining as it falls. Note that despite the ticker symbol, this short ETF isn’t the same as the “Dogs of the Dow” strategy mentioned above. It’s also not a strategy that new investors should consider. While you’re not actually shorting the DJIA, short positions tend to be more volatile (even through an ETF).

Keep Tabs on One of the Most Important Indices

While the DJIA only represents a portion of “the stock market,” it nevertheless portrays the biggest, most important group of movers and shakers. These are companies that dictate the broader performance of the market, and sway its movements on a regular basis. Following this index gives a clear indication of market sentiment, no matter what your portfolio looks like.

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