It’s on every finance headline.

"The S&P 500 is up."

"The Nasdaq is down."

"The MSCI World just hit a new all time high."

But what do these mysterious names actually mean, and what does it mean that an index is up or down?

Think of an index as the market’s pulse. A simple number that tells us how healthy (or stressed) a group of stocks is.

When you hear that “the market” went up or down, you’re really hearing about an index.

They track how thousands of companies are doing at once. It’s what your pension follows, what your ETF mirrors, and what shapes the story of “the market” itself.

The twist?

Not all indexes work the same way.

Indexes are the easiest way to see how an entire market is performing without analysing every company one by one.

For example:

• The S&P 500 tracks 500 of the largest U.S. companies.
• The MSCI World covers about 1,500 companies from 23 developed countries.
• The C25 includes the 25 biggest stocks on the Danish stock exchange.
• The FTSE100 represents the 100 largest companies listed in the U.K.

When the companies inside an index rise or fall, the index moves too.

In other words, an index turns thousands of moving parts into one simple number - a shortcut to understanding the mood of the market.

How Indexes Are Weighted - And Why It Matters

Not all indexes play by the same rules.

The way they’re built determines how they behave, and which companies end up steering the market.

Market-Cap Weighted

Most major indexes, like the S&P 500 or MSCI World, are market-cap weighted.

That means a company’s influence depends on its total market value - share price multiplied by the number of shares.

So when Apple, Microsoft, or Nvidia have a great day, the whole index feels it.

Meanwhile, a smaller company could double in value and barely move the needle.

Two decades ago, oil giants and banks ruled these rankings. Today, it’s all about tech: proof that in a market-cap-weighted world, size really does equal power.

Equal-Weighted

Equal-weighted indexes flip the logic. Here, every company counts the same, no matter how big or small. A trillion-dollar titan and a mid-sized manufacturer each carry equal weight.

That makes these indexes a better snapshot of how many companies are performing well - not just how the biggest ones are doing.

When smaller firms rally, equal-weighted versions of the S&P 500 often outperform their market-cap cousins.

Price-Weighted

Then there’s the price-weighted method: the quirky original used by the Dow Jones Industrial Average and Japan’s Nikkei 225.

Here, companies are ranked purely by their share price, not by their size.

The higher the stock price, the bigger its impact. Which leads to some strange outcomes: a company can shrink its influence on the Dow simply by doing a stock split.

It’s a relic of the early days of finance - fascinating, but a little outdated in a world where trillions move at the tap of a button.

Inside the World’s Biggest Indexes

Indexes come in all shapes and sizes - from global powerhouses to regional snapshots.

Here’s a tour through some of the most influential ones shaping markets today.

S&P 500 (U.S.)

The heavyweight champion. This index tracks 500 large U.S. companies selected by a committee based on size, profitability, and liquidity. It covers about 80% of the total U.S. stock market’s value, and is dominated by tech giants like Apple, Microsoft, and Nvidia.

MSCI World (Global)

A passport to the developed world, covering around 1,500 companies across 23 countries. Sounds global, but here’s the twist: about 70% of it is American. That’s because the U.S. still towers over global stock markets in both size and market value.

STOXX Europe 600 (Europe)

Europe’s go-to benchmark, combining 600 large, mid, and small-cap companies across 17 countries. It’s market-cap weighted, but with an important rule: no single stock can make up more than 10% of the index. From LVMH and Nestlé to Novo Nordisk and Siemens, it’s a snapshot of Europe’s most powerful names.

Dow Jones Industrial Average (U.S.)

The classic - and the quirkiest. It includes just 30 major U.S. companies and is price-weighted, meaning a stock with a higher price tag has a bigger impact, regardless of its size. A single stock split can shift its balance, which makes it feel a bit like a relic from a slower era.

Nasdaq-100 (U.S.)

Tech central. This index tracks 100 of the largest non-financial companies listed on the Nasdaq exchange. It’s modified market-cap weighted, meaning it caps the influence of giants like Apple and Microsoft so they don’t completely take over.

FTSE 100 (U.K.)

The face of British business. It tracks the 100 largest U.K.-listed firms using free-float market-cap weighting, which only counts shares actually available for public trading. That way, state-owned or family-held stakes don’t distort the picture.

Nikkei 225 (Japan)

Japan’s flagship index - and another that’s price-weighted, just like the Dow. It includes 225 major Japanese companies, from Toyota to Sony, but higher-priced shares carry more sway than larger companies.

The Constant Shuffle: Who Gets In and Out

Indexes aren’t static. They evolve as markets do.

Companies that grow large enough are added to major indexes, while those that shrink or stumble are removed.

This process, called rebalancing, happens regularly - quarterly or annually - to keep indexes aligned with the real picture.

For example, a company might move from the S&P MidCap 400 to the S&P 500 after a period of strong growth. Or drop out entirely after a decline.

That constant motion keeps indexes relevant - but also means your index fund or ETF might quietly change what it owns without you realising.

For example:

The S&P 500 changes more often than most people think, but not on a fixed schedule.

Here’s how it works:

• Rebalancing happens quarterly in March, June, September, and December when the S&P Dow Jones Indices committee reviews all 500 companies.
• However, changes can also happen anytime in between if a company merges, goes bankrupt, is acquired, or no longer meets the index’s criteria (like market cap, profitability, or liquidity).
• On average, 20 to 25 companies are replaced each year.

What This Means for Investors

Indexes are the backbone of passive investing. When you buy an index fund or ETF, you’re buying a slice of that index - an instant, diversified portfolio.

But “diversified” can be deceptive. Take the MSCI World: it includes thousands of companies across many countries - yet around 70% of its weight comes from the U.S. That means your “global” fund is heavily exposed to the American market and its tech giants.

What Should Investors Do?

If you invest in an index fund or ETF tracking the S&P 500, MSCI World, or STOXX Europe 600 you don’t actually need to do anything when the index changes.

The fund automatically adjusts its holdings whenever companies are added or removed.

That’s the beauty of passive investing: the rebalancing happens quietly in the background.

That said, it’s smart to review your investments about once a year. Not to react to every tweak in an index, but to make sure your overall portfolio still fits your goals.

Over time, small shifts in markets can change your balance between regions or asset classes.

For example:

• The MSCI World becoming 70% U.S. means you might be more exposed to the U.S. tech sector than you intended.
• The S&P 500 has become increasingly concentrated in a handful of mega-cap stocks, which could mean less diversification than it once offered.

So while short-term index changes don’t matter much for long-term investors, periodic check-ins do.

Think of it as a yearly financial health check - not a reaction to headlines, but a way to make sure your money still matches your plan.

In short:

• Don’t chase every index update.
• Do stay aware of what your funds hold.
• Review your allocation once a year and rebalance if needed.

That’s how you keep your portfolio steady - even as the indexes evolve beneath it.

So how can investors make sure they’re truly diversified?

• Add regional funds (like MSCI Europe or MSCI Emerging Markets) to balance U.S. dominance.

• Combine different asset classes - stocks, bonds, and maybe real estate, so you’re not relying on one market’s fate.

• Understand what’s inside your fund. Don’t just assume “global” means balanced.

Indexes were designed to simplify the market - but understanding how they’re built helps you see where your money really lives.